That's a really great assessment.
The reason our group decided to have chaos stars get cancelled out was that it simply always felt like a comedy of errors instead of grim and gritty. Ironically, we've only lost 1 PC in the entirety of TEW using our new rule. When I ran The Dying of the Light, we lost 5 or 6 (without the rule), but that was a lot more combat heavy campaign. In our new campaign, it has been mostly roguish pursuits and social-control by the Nobles in the party. As I use an incredible variety of skill checks in my game, my players are kind of forced to be well-rounded and chaos stars are like party tension meters: They punish good play when they turn up too much. I'm leaning towards simply invoking the "bane" of the chaos star or your ideas presented above instead.
jh