There is also Pola, if it proves impossible to retain Trieste in the service of placating Italy.Assuming Berlin still prides itself on its navy, I would think they'd want a port on the Mediterranean. Getting Istria (or at least Trieste) would give them one on the Adriatic.
Would Austrians accept Protestant being head of their state? They might accept being part of Germany but I have bit hard to see them accepting Protestant being head of state of Austria. Perhaps some Catholic branch of Hohenzollern if Habsburgs are not cooperative.
Would they worry so much by this time? The Lutherans accept some of the Catholic sacraments anyway too, so they're not completely different or 'alien' in practice.