If the shock was longer, it would increase the ride height, and in turn mess up the bikes geometry. It would be quick to turn, but unstable at straight high speeds, and susceptible to tank slaps.
Yes, if the bike was already set up to steer as quickly as possible just before instability. Worn tires, loss of traction in the rear coming out of a turn, and unbalanced tires/wheels can cause this, too.
Ride height is a common adjustment on high-end shock absorbers and it is used to fine tune the chassis geometry once the spring rate has been optimized. It's also used to reset the chassis to account for different types of tires and to even account for tire wear (less common).
The FZ8 is a very stable motorcycle and it can tolerate a pretty wide range of adjustments to geometry. It has a longish wheelbase and fairly lazy steering geometry so steepening the rake a bit (not excessively mind you) is not going to cause the bike to go out of control unexpectedly unless one gets into some sort of real trouble.
What you want to do with your ride height, if you have it, is first get the shock set up with exactly the right spring and get your static and dynamic (loaded) sag set correctly. Then we can use the ride height to fine-tune the chassis to make sure it's at a proper geometry for the intended use.
Some of these later model "track day" bikes which are not racebikes, like the 675 Daytona, are running some really steep geometry, at 22 degrees and even less for some, like the Buell superbike. These are not racebikes. The only remaining superbike, the GSX-R 750, has a rake of ~23 degrees and even that is fairly steep. It's got a steering damper but will shake its head even so, but that bike is perfectly composed at 160 mph.
The FZ8 is out to 25 degrees with a good share of trail and we don't expect to be railing through turns over 100 mph (not that it can't do it, but the wind blast is just not conducive to wanting to do it).
It's a process, get someone to help you out who knows what's up with suspension.
