Heh. I’m going to give answering this a whirl. Wish me luck!
This is the interpretiation that I use, as well as every other Wiccan/Pagan I’ve met who has held this rule. For the purposes of answering this question, I’m going to stick to the “Harm None” part of things. The rule of three isn’t something I necessarily believe in 100%, so I’m not even going to go there.
We pretty much define “harm” in the same way that you do, Fenris. I mean, I consider myself a moral person. I conduct myself in a moral fashion; this has nothing to do with my religion. I would do so if I were a Christian, Jew, Muslim, Atheist, or what-have-you. The difference is that I, as well as other Wiccan/Pagan types, carry this morality over into the magical/spiritual realm.
Wicca/Paganism is different from other religions in that there really is no codified, universally accepted morality. There is no Leviticus of Wicca. There is no Deuteronomy of Drudism. What is “good” and what is “bad” is generally left up to the individual. There are, of course, societal standards and basic common sense to be dealt with of course.
As far as magic goes…the standard that I’m familiar with is thus: do not interfere with others’ lives. Don’t do magic for them unless they have given you their specific permission. And don’t try to infringe upon their free will.
AFAIAC…not acceptable. It would be poetic justice, and in a heated moment, I might do it, because I can be really rash when it comes to stuff like that. But it wouldn’t be acceptable. There are other ways which would probably be more effective in teaching him, ways which wouldn’t involve magic. Also, as part of my religion, I respect nature greatly, and don’t think that it should be tampered with lightly. Doing so to help cure people, that’s fine by me. And I’m extremely for scientific research in just about every area that I can think of at the moment. But changing someone’s ethnicity, messing with what nature has given us, just to prove a point that can be demonstrated in other ways…that’s wrong in my book.
That’s a difficult question…but I think, again, that it falls to a question of personal ethics. Does the good outweigh the bad? I don’t necesarily consider shocking people to be inherently harmful…not desireable, sure, but not harmful by any means. But I know that my moral compass is at times skewed, especially towards the politcal/social end of things.
In cases like this, there is, I believe, an inherent right and wrong; a side which is more right than the other, if not totally right. I might not know which is which, but I believe that, if I’m wrong, I’ll catch it in the end, whether in the form of a lesson or whatnot. I think that the rule of three–yeah, I’m gonna bring it up–is sort of a metaphor or whatever for that. If I do wrong, sooner or later, I’m gonna find out why I was wrong. Learning this will make me a better, more ethical person.
Of coure, YMMV 
