The sensor typically goes on the back of your upper arm (your tricep). You can accidentally bump into things with it, but it was infrequent enough that it didn’t bother me.
The needle is only used in the application of the sensor. It’s spring-loaded and retracts after the sensor is attached. I hate needles, but I found that the tape on the sensor provided enough stimuli to overwhelm my brain and not really feel the needle when it went in.
No it never gets in the way. I would not recommend doing it unless you are a diabetic, the results are not that interesting. It took me two years to get used to smacking that needle into the upper arm/stomach/leg, spending up to 20 min -40 min getting over the fear was not a fun time.
T1D here, needles are nothing compared to everything else an insulin dependent diabetic deals with. I guess only maybe 1 out of less than 100 shots hurt that much. It only happens when a nerve bundle is hit, then it smarts but it is still less bad than either high, or low blood sugar as well as how insane most every part of American 'health care' is. The main tricks for comfort are go with 29 gauge not the narrower more fragile types with the higher number gauges. The narrower ones have more fragile needle points and they can get damaged by bending during the insertion into the bottle. The other trick is to make sure the alcohol is dry before you take the shot.