Part of that I agree, the incompatible ideologies should be a challenge, not a problem. However I'm less convinced of the viability of the power levels. Now I've occasionally seen good fusions with very different power levels, but it usually only works when I want to see one side get smashed. I want the USS enterprise to come into the universe of serenity and smash the revers. I want a powerful empire to show the cylons up. I want alucard to show Edward Cullen what a real vampire is like. I really don't think I'd fine Kakashi killing Aang nearly as enriching. (not to mention given Naruto's higher death count, half the Avatar cast would die in the first encounter, which I don't think makes for a good story)

Now you could have the Avatar crew adapt, and learn, but even that has it's problems. If Avatar has to learn from the ninja's then the ninja's have already won the ideological debate, as they've proven their philosophy is stronger. And everything else aside, both shows have a "right makes might" ideal.

Like I said, the easiest way to handle that is probably to subtly bump up Avatar's powerlevel. Cause otherwise the fic going to come off as "Naruto's so much better than Avatar" as each of the Avatar cast is massacred by the Naruto cast.