In terms of Renko's antics, I guess I felt that the battle she's proposing is fairly harmless at this point. She doesn't intend any theft or lasting harm to them, and such battles don't seem to be frowned upon too strongly in Gensokyo. I'm not sure there will be lasting negative consequences if we leave things as they are. Renko's already given us a sizable concession.
In terms of what Byakuren's saying about karma, I get the impression from her that even people in the know don't agree. She said others disagree with her assessment, and that only the Yama would really know. Even Yuyuko, who ought to know quite a bit more about the afterlife, said that Byakuren tended to be too serious. Patchouli outright thought Byakuren was wrong. I figure 'karma' is a subtle enough thing that it leaves room for interpretation in terms of how and why it's affected, for most people (again, possibly outside of the Yamas)
I understand the size change aspect is a downside to this. Byakuren said it would be a fair bit less pronounced than her own, however. Still, we never actually committed to it, and it doesn't hurt to have the option open.