CHIM becomes an awesome concept once you properly understand it. People compare CHIM to Matrix or dreaming up a (fake) world in order to give others an idea of what CHIM is, but CHIM is more and better than that. Just because the Godhead is the world and can control it doesn't mean he actually does. Furthermore, one who knows CHIM is everything and everyone and yet, everyone, including the CHIMp (
), is himself and only himself. To believe you don't actually exist and/or are just a dream is to zero-sum, which is a fate worse than death. Vivec is one of the many, say, personalities of the Godhead. Another guy who has CHIM is Talos/Tiber Septim.
I think MK described CHIM as anti-Nirvana. There is a theory around which compares CHIM/the Godhead to the Construction Set. I used to subscribe to it, but then I realized that it was based on some easter-eggs that can be found in the Sermons.
Yes, those who have CHIM no longer have the desire to use their powers because they are the world. Past, present, future. They can see all possiblities. (Are then the Elder Scrolls a mundane mirror of what God is or is capable of ?) However, sometimes these CHIMps choose to use these powers. Talos changed the Cyrodiil so that it became more hospitable. Vivec banished Azura (and Molag Bal also, hope I'm right) using his leet-haxor powers...and his mighty spear, but that goes without saying. He also acted by not acting and let The Ministry of Truth crash because "Love is under his will only". Yes, he is benevolent but he doesn't hold his people's hands all the time. I'd say he let the Ministry of Truth crash for the same reason why he often didn't use his god powers on the battlefield, but instead lead armies and let the soldiers fight for Morrowind.
Yeah, the Nerevarine could have "killed" him. If killed, Vehk just makes a trip to Aetherius and returns whenever he wishes. He wrote the sermons so that the Nerevarine would at least have a grasp of what CHIM is and what Mundus and the Aurbis is etc. Given that the Nerevarine understood what CHIM is and what Vivec is capable of, (s)he would have known that he can't truly die.