If your gun is shooting 12" above point of aim, the front site on this fixed sight revolver needs to be higher or the rear site lower. Since the front site appears to be dovetailed into the barrel, it would be easiest to put in a higher front site. I don't remember if the rear site on a Starr is a groove in the topstrap or if it is a notch in the hammer (as on the Colt's), but I'm guessing it is a groove in the topstrap since it has a topstrap; in either case, working with the front site is the easiest fix.
Pietta has been making fine weapons since long before anyone here was born. Quality-wise, I would expect the gun to be very well made. Haven't sold a cap and ball pistol in so long that I'd have no idea about it's value.
If you think the two higher nipples are causing the misfires, measure the other nipples and file down the offending ones to the same length and see if that helps; if it doesn't, replace them. You might want to check the size of the flash hole in those also. Dixie gun works should be able to supply replacements. Check the thread size...they are gonna be metric.