In a counter-guerrilla action (which I think is the best way of looking at the war against the global jihad) you need to evaluate any action in terms of number of terrorist killed versus terrorist created. This is because in most guerilla actions the guerillas win by not losing, if they can sustain the fight they can win (Phase one in Mao’s guerilla war). Any action which causes collateral damage is likely to increases the number of terrorist and their sympathizers. If an action kills more terrorist than it creates then it moves us closer to our objectives, if not it moves us the other way. Obviously this is an over simplification since there are an infinite number of points between us and them, but I am not trying to write a book here. Now if we take or original scenario of UBL in a house we have the added complication of a true high value target not just another foot solider so we would need to take in to account the number of people he could inspire alive, dead, as prisoner, or naked with a bag over his head with some redneck girl pointing at his crotch.
So bombing a house full of kids and making UBL a martyr would create some terrorist but it would it would show UBL to be vulnerable and it would silence a major voice of the global jihad (don’t think it would end anything UBL didn’t start it his death won’t end it) so there would most likely be a net gain, I say go for it. A hydrogen bomb taking out a large city would probably create thousands of terrorist and millions of sympathizers there by having more of a negative effect than a positive one so I would recommend against it.
Of course none of this takes into account moral dimensions but I’ll leave that to the preachers and philosophers.