I don't understand the problem with baking resolution - surely you just render to a larger image?
I've found baking to be painless in general, though I have not tried baking normals.
I've used it with IFW in several different ways, for example to bake the panels so the surfaces work for someone who does not have ifw2, or to bake procedurals (including IFW) so I can then overlay decals and the like onto the maps.
I generally have ambient up to 100% and all other lights off, and rely on lighting in the final scene for any occlusion type effects. Or for occlusion type effects baking, set the background to pure white and all lights off, ambient light at zero.
About the only thing that can get messy is baking a bump map, where I generally change the colours, (for example, making panels have a white surface and black gutter, or making grime and rust dark on white tiles for a spec map)