Often, when I'm studying, I'll find a word that I don't know very well coming up pretty regularly, sometimes every couple minutes. After a few iterations, I can usually nail it the next time, but since it's such a short-term recall, I don't trust my knowledge of it yet, so I usually mark it as so-so/2/yellow. By doing this, am I A) wasting my time or B) potentially messing up the SRS algorithm by causing oversaturation of the character/word, or should I stick to this method for optimum acquisition of new words?

The Skritter algorithm adapts to your actual success rate, so you are probably lowering its delay interval by doing this. Nothing wrong with that per se I suppose. I would tend to grade it instead based on whether you remembered it cleanly or whether you were doubtful/guessed/used hints, and that will probably give you a more accurate number for that interval.

One case where I do tend to mark it as bogus is when I have recently seen something related which primes my memory. For example, if I recently saw 胳膊 and now am prompted for 胳膊肘 the recent exposure to 胳膊 is clearly going to give me an advantage, so in this case I will often mark it as a 2 or even a 1 if I'm very doubtful of my knowledge.

James

agree,

if you didn't have any other reasons to manually change the grade, I would recommend trusting the SRS. It will come up again soon enough anyway.