Well after two months on my R3 I am ready to move to a more aggressive riding position. I purchased the bike as a reward for recovering from some surgery, and set it up for max comfort, knowing that as recovery was full I could get more aero riding position. ATM I have max spacers and turned up stem. Do I want to work on flipping the stem back or removing spacers to start the process?

 Stem flip. That way you don't have to worry about repositioning the bung in the steerer.

depends on how much you want to drop, depending on the pitch stem you have, by flipping it, you could see a drop of 20mm or more, so if you only want to drop say 10mm then you would pull out a spacer to drop it 10mm then when you are ready to drop another 10mm put the spacer back under and then flip the stem.  So it really just depends on the increments you want to work with

 I'd go with Sam's suggestion.  Either way you have to take off the cap and re-tighten the headset (not sure what Greg was referring to). Flipping the stem adds the extra step of removing the bars and putting them back on after flipping the stem - not a big deal obviously.

  If you expect that you will eventually flip the stem and flipping it doesn't cause a huge drop then you might as well take care of that first and subsequent moves will be spacer by spacer.  But it does depend on what kind of increments you want to move in.  You might need to buy some extra spacers if your current ones are thick.

Stem flip.

 Thanks to all for the very useful help. I deceided to move a spacer and drop the bar 10mm. It is still very comfortable and feels very good. I think I can continue to get more agressive. On the other hand I hate to fix what works.

 operaman, if you are still on the trail of recovery from an injury, make the changes slowly, to match your pace of recovery. I would suggest you start by flipping your stem back, and then as you further develop fitness and flexibility, trim some spacers off as well (if needed). Remember that by flipping your stem back to a negative rise that you will not only be dropping rise/stack but also extending reach. For example, an 84 degree stem (e.g. 3t ARX) flipped up will have 7mm less reach and 22mm more height, compered to the same stem flipped down (without manipulating any spacers). Check out this site to calculate the exact changes in rise and reach:

http://alex.phred.org/stemchart/Default.aspx

EM3