We have several bench grinders with wire wheels fitted. Most have half guards with no tool rest. However, we have one that has a grinding wheel guard with no tool rest fitted.Someone was using this to clean up a 35mm fitting (remove old sealant). The fitting was snatched from the employee's hand and jammed between the wire wheel and the guard, stalling the motor. 

The question is, what guarding should be used and should a tool rest be used? 

What you have is the wrong guarding on the machine, with a wire wheel the "grinder" is moer akin to a polishing machine, which would have less guarding around the bottom of the wheel to prevent this from happening.

If you are going to use close fitting guarding, then you need to use some sort of tool rest yes, but, it does not need to be to the same positional requirements as it would for a grinding wheel.

Also a larger rest is often better for polishing, aka using with a wire wheel, than is required for grinding.