1. No. I don't think virtue can be compared "relatively speaking". The U has plenty of problems, and likely just as widespread, as PSU. They're just different.
2. No. Without question, they should outright refuse. I'm not a "CANCEL THE GAMES!!!" advocate but they do not need to add games to those that have already been scheduled. I know it's infrequent but schools have turned down bowl bids. The most recent, that I recall, was SC/Clemson due to a brawl in the waning moments of a game. Neither team was very good so it wasn't like they turned down a BCS game but both schools announced that they would not go to a bowl within a couple of days. 2004.
http://www.youtube.com/watch?v=bDzl1dJthYo&feature=related
The image I recall the best:
