No need for 1/4 inch, I have been using much smaller with no ill affects yet. No way would I use 4-40 though. As for the balsa, I have never tried that.
Here is a picture of some long standoffs I used. After running the engine I decided to tie the top two and bottom two together with light ply, glue and screws which is not shown in the picture, also placed larger fender washers at the firewall.