I know this is probably too late for anything, but here's my two cents.
2) I don't see anything positive coming from this option.
3) I use Flame notes about 50% of the time, but I don't chase scores (see #4). My usual load-out is road rage - blast notes - super guitar, but only because I can lazily gold star most songs this way.
4) -5. I care nothing for leaderboards or chasing them, I just play through songs on Blitz to interact with my music a different way. I don't even chase my own scores.
I believe at this point it's not so much a matter of completely balancing the power ups as much as it is keeping customer confidence. Nerfing things and wiping the leaderboard does not do this, while buffing the others brings a level of new intrigue and freshness to the game.
There's no need to destroy the Kingdom when the castle just needs a few upgrades.
On the topic of the tournament coming up:
Here is where you can nerf flame notes, but I still don't feel that this would be a great solution. What you should do is just ban the bandmate/flame note/xxx loadout, kind of like when Street Fighter or Soul Calibur bans certain characters for tournaments. That to me would be the quickest and most effective "fix" for the short time you have to get it running.