Despite what purist grammarians may prescribe, double negatives are widely used and understood as negatives in everyday speech; if someone tells us "I ain't got no money", we all understand that they are claiming to be broke. In the case of "badly miscalculated", I would take "badly" as an intensifier, just as "severely" would be.

I don't think either versuion conveys the meaning well. I would argue for "until she was smoking..."

In the case of "fairy dancing", I would consider it a noun phrase, where "fairy" is used as an adjective describing the type of dancing, similar to "ballet dancing" or "jazz dancing".