A few things here. First off ,as you move the capo from fret 1 to fret 3, for example, you are going UP the neck. Think of it in terms of pitch. As the notes get higher we ascend, or move up the fretboard.
In terms of intergrity within a song, there are no rules or standards in which integrity applies, unless one is lip syncing or using pre-recorded music( haha) The pre-recorded music is just a major pet peeve of mine. Some people are OK with it, I for one find it totally despicable.
Seriously though Greg, find a key and chordal progression that you're comfortable with and go with it. I've found that higher UP on the fretboard I place my capo, the more issues I have with proper tuning. Like Wayne(previous post), who gave some great advice in his post, I rarely capo above the 5th fret.
Another advantage of using a capo is that this extends the life of your frets. Before I started using a capo regularly in my daily gigs/practicing I would get 4-6 months out of my main guitar before the frets became in dire need of replacing. With regular use of a capo I'll get 12-15 months of playing before it's time to replace my worn down frets.
Anyways, feel free to post here anytime with questions, comments, or anything you find amusing. We're a good bunch of people here( mostly) and are eager to answer any question or give some friendly advice to the best of our abilities.
Peace and Guitars,