Lowering the compression does reduce power (with the same fuel) because of the lower efficiency, as Dar said, but also because the ignition timing is then retarded. You can regain a little of this lost power by using a hotter plug. Nitro however adds more power than you lose with the reduced efficiency which is why it's so commonly used. The cost of course is the initial expense plus the far higher fuel consumption compared to straight methanol.

The reason for lowering compressions to use nitro is that nitro won't tolerate high compressions like methanol does before it detonates. Straight methanol will handle up to about 17:1 where straight nitro can only handle around 6.5:1 so with a blend you need to use a compression somewhere in between these two.

There's really only one way to find out how much nitro an engine can tolerate and that's by using a good tacho and gradually increasing the nitro content. When there's no discernible rev rise use the fuel from the previous run. This way you'll never get to the point of detonation which apparently sounds like frying eggs (although I've never heard it myself). Don't forget though that you should also play with cooler plugs to really make the most of it. It's a real juggling act

Squish clearance has no real affect on sport type engines, even good ones like a Rossi, because any change to compression/fuel far outweighs any change in squish clearance (unless you're raising compression and put the head too close to the piston ).

I have to disagree with Dar on one thing though, high compression engines on zero nitro are dead easy to adjust. So are low compression on zero nitro.....