yes, a chain that is too tight is MUCH worse that one that is too loose. you can and will damage the chain and sprockets if it is over tightened. when off the bike, you should have about 1.5-2 inches of slack in the chain at a minimum. you are guessing right with the suspension compression thought. thats exactly why the slack needs to be there. when you jump/carry a passenger the chain will tighten. if the chain is initally too tight you are now putting extreme stress on teh joints of the chain and teeth of both sprockets. with me having a very extensice background in sportbike mechanice and track time. i have seen numerous people bring me their bikes after they did their own chain maintenance asking why they are shearing teeth off their sprockets. i have even seen a chain break and not only destroy the engine case but also whip up and take out the guys shoulder along with it.
one thing to keep in mind when adjusting your chain is that your bike was made in japan, their test riders are also japaneese. they weigh much less than your average american. so when the manual says you should have XXX amount of slack, you have to keep in mind that this is the recommended slack for a 145-165 pound rider. if you weigh anymore than that, you will need to compensate with slightly more slack in the chain. the only damage that can occur from a chain that is too loose is that it will rub the skid plate and possible wear your slider out a little faster. if you can sit on the bike/quad and the chain gets to the point that there is less than 1 inch of play in it, the chain is too tight.
