Theoretically he could make this "kiss of true love" also trigger something truly horrible.

True, a from the frying pan into the fire scenario.

Yes, I was wondering why Xander would believe her at all, as well. Of course, as aycheb pointed out she had done a similar curse before, but it seems to me what worked was Willow losing her guilt. That's one reason I was thinking that who Buffy feels most guilty about is Dawn.