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So I am thinking of using this power in an upcoming tournament (I've never run the power before).

So was thinking of converting some Chaos Spawn (or possibly basing up some Sheep )

But anyway I was just thinking...
The Chaos Spawn are actually a liablility in KP missions, so would it be okay to simply not use Chaos Spawn models in KP missions but do use them in any other mission?

No it would not - you are loooking to gain the advantages but none of the disadvantages.

Tactically it would be better to just leave the spawn at home. They aren't that great and are easy KP in KP games.

As far as the power goes, you do have a choice whether to place a model when a model gets turned. I think no matter the situation its a fair trade off. You're choosing not to maximize the points you spent in purchasing the model with the power. You're choosing not to get to attack and bind up an enemy unit. So there are downsides.

I decided to use Spawn models after all in both KP and not.

As it happens I only got it to work once vs a Daemon Prince of Nurgle of all things!