Grinding the sway bar will certainly weaken it. To keep from making a stress point I would taper it out 2 or 3 inches in each direction.
Heating it to bend it would require heating the entire bar and then properly quenching it, after you get it bent to the shape you want. The transition from heated steel to unheated steel is where the stresses will be different, potentially causing a stress fracture. The further you pre-heat the bar before bending it will lengthen the transition. I knew a lot of guys that would put wooden blocks under the front of their cars and then heat the coil springs until both sides rested on the blocks, to lower the front end. It worked out for some of them, but others had the coils break. So, what I'm saying is that it's a crap shoot if the entire bar isn't heat treated.