Factory service manual recommends against the head being shaved down. Mating surfaces can be cleaned with a scouring pad, but no material is recommended to be machined off. If the head's flatness if outside of spec, the head is replaced. Decking the head won't affect the clearances with your valves and camshaft, but they could issue with potential interference between the valves and the piston (remember, the 1ZZ-FE is an interference type engine and there is a reason for that dished piston top with valve reliefs).
That said - I don't think the 0.010" difference will be a deal breaker. Only time where that could come back and get you is if it continues to consume oil. Those extra deposits could cause the piston to actually make contact with the head. If I remember correctly, the taper squish design (how the edges of the piston top turn up with the corresponding combustion chamber bowl shape) doesn't have a lot of wiggle room before it makes contact. Don't think 0.010" will make that difference - but add that same about in carbon deposits on both sides, then it is a different story. Since it sounds like the work was already done - just throw the head on there, get the rest of the engine built up, and hope that the oil consumption has been nipped.
Yup - good call on the O2 sensors and cat. At the rate you were consuming oil - petty much everything downstream of the engine will likely have a good coating of oil / carbon deposits. Additives in the oil, if they didn't clog the cat, would have greatly shortened its lifespan (poisoned). Same with your O2 sensors, both upstream and downstream - once additives make their way past the shroud and contaminate the central electrode - readings would be compromised, would explain the funny behavior you saw.