The DPI may be a small bug. A device that doesn't have a DPI specified in device definitions will default to 160. (Or alternatively it could have the wrong DPI specified.) But the difference between 160 and 167 shouldn't really matter.
Anyway, what's better is entirely up to you. If you like it smaller, keep it at auto (probably 160), if you like it a bit larger, increase it slightly (such as to 167).
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And also, is there any way to "reset" all of the new defaults I've set? I don't mean the "reset document settings to default" option, I mean reset all defaults to the ones that come with koreader when you install it.
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I don't think so, or at least not without editing or deleting settings.reader.lua. But if you long press on a setting, the same way that you changed the default, most of them should have a "(Set to) default" button.