This is the old overclockers secret from years gone by when we were stuck at very low bus speeds. Raising the bus and lowering the multiplier gave you huge performance increases over just raising the multiplier alone.
However, todays quad pumped FSB's don't benefit nearly as much. You will see a performance increase in benchmarks, but it will be very marginal. Today it is more effective to raise the CPU speed, as the bus speeds may appear to be a bottleneck just looking at the numbers, but actually they are not. But your theory is sound. Try it and see, I think you will find that you really don't gain a lot, maybe a few points in benchmarks, but nothing you will really notice in everyday use.
No, if you are overclocking frequency beyond factory, then original/default voltages will not work. Especially 266MHz to 400MHz, that is not a small jump, it is 150%. You will need to boost the CPU FSB Term Voltage.
You said 350MHz, but then 'at a much higher FSB'?
Depends what memory multipliers you have available, but generally CPU FSB 333 MHz or 400MHz is best. Whichever setting you can make stable, you can also run the RAM at DDR2-800 as intended.