Re: public blog not created error
Just to wrap up this post. I went into /mu-plugins/bp-blogs/bp-blogs-classes.php and searched for “public”. At each instance where **public=1, I changed it to -1 so that it would recognize the setting from dsader’s More Privacy Options. This is not the most elegant solution, but it works for what I want. It prevents anyone from accessing the WPMU/BuddyPress site without logging in, and makes sure that the blogs appear as public once the users are logged in. If a user wanted to a blog could still be made private using the two other privacy options with More Privacy Options, only blog users can see the blog, and only site-admin can see the blog.
Hope this helps anyone who has similar situations. Of course it could be refined even further by adding a conditional so that public=1 becomes (public=1 || public=-1), didn’t try it, but something like this should work too.