That's the issue that crops up so often. People do a fic and then stick strongly to the canon storyline, regardless of the changes that could and should be inflicted.
Hm... a more interesting crossover between the two of them could be Shiro as a wandering swordsman. Maybe he's a bit down on his luck and takes a job for some rich guy who happened to be humiliated by Ryozanpaku.
A Shiro vs. Shigure match could be interesting, and depending on who wins.
I don't see either of them going all out in their first match. Shiro wants to conceal magecraft, and Shigure probably views him as just another chump to crush. A sudden end to the match could prevent either of them from having a chance to cut loose, giving us potential to see future fights between them.
Shigure Wins: Shiro might want to stick around a bit to hone his skills. Maybe he shares some of his experiences with Kenichi, about how hard he had to work to overcome his own deficiencies.
Another option is that one of the ways he pays rent for staying is by making and selling swords. He has all the information he needs to make weapons far beyond anything world is used to seeing, though his physical skill at that could vary widely, especially as they grow more powerful or esoteric.
That could provide an interesting interaction between him and Shigure. her father was a blacksmith of unparalleled skill, and maybe she would like to pick up the trade. I don't think she ever had the opportunity in canon, and it strikes me as something she would be deeply interested in.
Shiro Wins: Shigure might develop a bit of a fixation on Shiro. Maybe follows him around a bit to find out more about him. She might end up helping him if he gets into a tough spot, and could a crash course on introduction to the world of Mages.
Either way, Shiro could provide a third POV compared to the Never Kill/Kill whenever you want setup of the main story. He doesn't enjoy killing, but sometimes you don't have a choice. Maybe the super skilled masters can get by without ever killing, but for regular guys, it's a different story, a road paved with blood, sweat, and tears.
He might find Kenichi a kindred spirit who needs a helping hand to reach his full potential, or perhaps a protege in his ideal to save everyone. There is some decent character development available if someone chose to explore it.
Regarding mage craft, I don't think that any of the Masters should have mage craft. Maybe, MAYBE, Kenichi, but the main focus should be on martial arts. At best, Kenichi would never progress beyond reinforcement, and even that should probably have serious consequences on him. Shiro doesn't strike me as the teaching type, and Kenichi has absolutely no natural talent for anything that could be related to fighting.
Actually, it could be interesting to see the Masters reduced to students once more, if any of them have the potential for magecraft. If Sakaki tries it out after Kenichi's been working on it, it would be a hilarious reversal from the normal interactions as Kenichi instructs Sakaki. Again, they shouldn't get anything game breaking from it, but it could be interesting.
Power levels: Shiro, as a regular person, would probably be somewhere in the expert level on the disciple/expert/master scale. Might be on the high end of it, and certainly well above Kenichi, but his mage craft is too central to his fighting for me to see him as a master without it. With reinforcement, he would probably be on par with a master, and going full out would PWN all of them, mainly due to the sheer brokenness of his RM, and the Phantasms available. The Masters surpass him in physical power and skill, but his Mind's Eye and reinforcement allow him to fight on their level.
...and I should be writing for the competition right now...