After reading the requirements, I am assuming its better to apply for this visa outside of Thailand. Has anyone had the experience of going to a US Embassy and asking for a letter to live in Thailand?? Are you asked for any documents??

In my experience it is easier to get a Non Immigrant Visa in the USA and apply for the extension in Thailand.  It can be done outside Thailand but compliance with the requirements    is too difficult. eg having a bank account IN Thailand. Get a multiple entry Non Imm 'O' visa before entry

I read type O visa for people with dependants, I assume married to a Thai?  Is this the visa your talking about??

Type "O" is for the whole "Others" category:

- dependant

- married to Thai

- retired

- children, etc.

So retirement visa shall be a NON-O.