Sibylla's Important Haircut makes a lot more sense if one considers that her original fate was to go to a nunnery after the siege was over. It's also Truth in Television: The women of Jerusalem cut their hair in solidarity with the defenders.
When Balian does the mass knighting, he repeats the exact oath Godfrey gave him except for one thing; he omits the phrase "do no wrong". Why does he do that? Because after seeing the horror of what Guy had caused, he realizes that "doing no wrong" is not always the right choice. His own desire to live up to that oath led him to make a decision that ultimately caused far more harm than anything that would have resulted from the "wrong" action he refused to take. Now acutely aware that this directive is flawed, he chooses not to pass it along.
Balian's position towards Jerusalem makes a bit more sense if you consider it as a sort of perception trick rather than actual historical accuracy. The real Balian was considered a moderate at the time, but due to the extent to which the world has changed since then, if the character of Balian merely reflected the actual attitudes of his real-life counterpart, he would read as not very moderate at all to a modern audience. By making Balian moderate by a modern standard, the film allows viewers to perceive the character in the same way that he was perceived by society in the time that he lived.
Balian's choice to not marry Sibylla and have Guy killed can come across as a Idiot Ball moment. But its simple, this path may lead to a civil war between crusader factions. Balian by not choosing this path avoids directly killing fellow Christians and at that point, he does not know that Sibylla's son has leprosy. So there may be a chance yet to avoid war.
In the Director's Cut, it's revealed that Sibylla's child, Baldwin V, also had leprosy, implying that it continues to run in her family. She kills him rather than let him suffer with the disease. What happens if she and Balian have kids?
Leprosy isn't genetic, it's caused by bacteria. Only around 5% of those who carry the bacteria end up contracting the disease.
