This past summer/early fall I was at my leanest. According to my skinfold measurements (and I was consistent once per week) I was just over 7 percent. My abs were visible, especially the uppers. I could see the veins in my arms, chest when I'd flex hard and even i little in the frontal view of the lat. Even though my bodyfat was that low (im just over 9 now, which is typical for me), I still carried a bit of extra fat on my lower back/love handle area. I think you have to be below 6 to get rid of that. My strenght wasn't affected at all. I was almost at my strongest ever in the squat and deadlift. High bodyfat doesn't necessarily equal more strength. It's just that getting to a lower bodyfat percentage means losing extra muscle most of the time just to get there.
On the same note, there are many people who are natural that can easily maintain low bodyfat levels. Like Valdez said about his friend who doesn't eat clean. I know a guy just like that. He is chiseled, but at 6 foot 1 only weighs about 160. He isn't very athletic, but looking at him, I'd say he's around 5 percent. Genetics.