He is first and foremost Rambo a warrior. Besides which, the challenge must be made from our Xu Jing, disciple of Zhang Jue, persona, so B1 loses us all our claims to fame we've gotten in this tournament unless we want to reveal the truth sometime later and suddenly make ourselves the big fat liar whose word isn't worth a damned thing, and the Committee a bunch of white-robed saints. Can't have your cake and eat it too.
I don't think that's true. We're revealing ourselves later on as Zhang Jue's apprentice anyways, our reputation will nosedive regardless. Anyone will look like a white-robed saint compared to us at that point, so if say, Bai Jiutian figures out that we're actually Guan Shide/Man Tiger Pig once we challenge the Huashan, so what? At that point, the damage will already have been done to the committee's reputation and the Frathouse will have the pretext to launch an investigation into the matter. As Zhang's apprentice, there are far worse things in the world that we could look like than a liar; lying and competing under an alias in this competition is frowned upon, but not disallowed. So if we roll up into the Huashan school and Bai Jiutian recalls that we're the same person he's met before, we can just say "Yep! You got me. I went there to make a mockery of the tournament, and now I'm challenging your school."
So I think this argument that suddenly we'll ruin everything several months down the line when we fight the Huashan is unfounded, because by that point the connection between the committee and the WiB will have been discovered. As for A2, we still might have to fight Yu Gan down the line. Unlike the tournament, this challenge is presented a matter of personal honor. I'd prefer to get this crap out of the way with B1, and get some extra experience with the Huashan style on top of it.
Don't underestimate Bai Jiutian's ability to take the crowd away from us. His fellow Huashan has challenged us, and he'll definitely take advantage of the opportunity that revealing our true identity and refusing the challenge will create. I doubt that it'll start a riot, but it'll certainly allow him to take center stage and bask in the attention that he so craves. B1 will infuriate him endlessly: he knows what we look like, he knows that we're lying, he knows our alias, but he can't prove shit. And if he does try to say anything, we can spin it as him being jealous of our skills. "My prelim fight was the same person you had faced in the finals last year! I'm ten times the fighter that you ever were!" To me, this dilemma is all about winning the crowd, and B1 does that the best, by far.
As for the argument about losing our progress, it really is not that big a deal. Our experience with the nuns will allow us to beat both of them at the same time once we pick Cao'er up from Emei and Nie Mudan is the least of our problems when it comes to the Huashan. Guo Fu is a problem, I will admit, but we have the Chuzhan Fist to counter him should he join the Wudang as you have suggested. It's important to note that we took the hardest and least efficient method of dealing with his Jinzhongzhao in the fight, but now we're aware of other things that we can do. In forgoing our claim and the final of the tournament, we can strike a huge blow to the conspiracy.