This is a great discussion! I must have *my* part of the conversation. ;)

< and we are told that Catherine *does* feel better about his behaviour after Henry's explanation

Are we? I think Catherine is merely jollied out of severity on Frederick. Here's how I read C's response: “It is very right that you should stand by your brother. [However, I cannot pardon him]” .... Catherine was complimented out of further bitterness. Frederick could not be unpardonably guilty, while Henry made himself so agreeable. She's distracted by Henry's attentions to her.

< he [Frederick] was also punishing an innocent bystander, James Morland, who *didn't* deserve it.

I must beg to differ with you here, Line. I agree with Henry that Isabella bears the blame in making James miserable. From Chapter 19:

“No, he [Captain Tilney] does not know what he is about,” cried Catherine; “he does not know the pain he is giving my brother. Not that James has ever told me so, but I am sure he is very uncomfortable.”

“And are you sure it is my brother’s doing?”

“Yes, very sure.”

“Is it my brother’s attentions to Miss Thorpe, or Miss Thorpe’s admission of them, that gives the pain?”

“Is not it the same thing?”

“I think Mr. Morland would acknowledge a difference. No man is offended by another man’s admiration of the woman he loves; it is the woman only who can make it a torment.”

< It still all boils down to the fact that *her* behaviour is what really matters, not his. :-(

But Catherine's main concern at this point is F's behavior: "But, suppose he had made her very much in love with him?” I think Catherine would agree with you that Frederick has been playing with fire. Frederick is rather a Henry Crawford (of Mansfield Park) figure. He sees an opportunity to trifle with "a vain coquette" and have his own vanity satisfied.

I think what Henry implies with his statement "she would have met with very different treatment" is that Frederick is smart enough not to trifle with a girl of good character and powerful connections. He has been clever enough, thus far, not to get entangled in his trifling.