Yes, we really do have to be conscious of the fact that he is a VERY biased narrator - "I'm the victim here!"
Yes, a spoonful of salt helps the truth go down. ;)
I'm probably wrong about the Itachi in a bucket thing, but man, if I'm right... that certainly would be intriguing.

...and here I was, thinking that my Uchiha conspiracy theory was all unique. I planned to imply that the Uchiha were trying to take over Konoha, and Itachi stopped them the first time around... and now I find that it's canon!