Hey zsteve,
I would suggest you take the placement test without any study, purely because the language skill needed to obtain any particular result on the placement test is perhaps the minimum needed to actually do well in that language level. I did chinese 9 last year, and to be frank the language placement test was almost a laughing matter compared to the actual standard set by the cohort for that language level. But this may be different for other languages. It is probably better to start at a lower level of language as this allows you to gauge the difficulty better, than if you went straight into higher levels.
I had a friend do chinese 7, with a background in VCE 3/4 chinese second language, and he didn't find it hard, but he did work pretty hard just to memorise the vocab and sentence structures etc.
I'm not too sure if the results are binding though. You can always argue to go above the level if you feel like you're up to the challenge, or down a level if you can manage to convince the language coordinator otherwise. Since you're chancellors, you shouldn't be worrying too much about grades (doesn't hurt to do well though), but definitely shouldn't be stressing over how much H1s you get at a first year level anyway. The uni policy for breadth subjects is that it is treated like any other core subject - basically, its just another subject, that has the same weighting as your cores.
Hope this answered all your questions.