Lace woes

This is Sunshine by LilyGo. I am not diggin' it. I have been planning this project since May. I ordered Tidepool Heather Palette for the project from Knit Picks and when it arrived it was not this nice pretty heathery blue green shown on the website or the catalog but dark teal! So I put off the project because I was not happy with the yarn. Then at Christmas I visited Camas Creek Yarn in Kalispell and spotted this perfect shade Summer Sky from Cascade 220 Heathers. The project was revived. As soon as I was done with my Hip in Kashmir I cast on Sunshine. I did a gague swatch (yay me) and began. The seed stitch went fine but I am really unsure about how long it is - will it be too big. Then as you can see things are not going to well for the lace. The top bit in the picture is much too big, something went wrong. I would just carry on but this is on the top of the sleeve it WILL be noticed. And the more pressing problem. I think I need to use smaller needles. The fabric is too transparent, my underclothing will show anywhere there is the slightest stretch That is planned for in the lace but not acceptable everywhere else. I am not a great knitter. I am already using worsted when DK is called for. I don't dare change the gague. My gague swatch was just right what havoc will smaller needles bring?