IMO what IB does is to dispel changes to the world. Essentially, Rensa was able to use her powers when IB was touching her because she basically ejects powers from other espers and emits them at a certain point where they can thus be negated after they leave her body. Because Touma presumably isn't used to fighting machines like her, I am guessing that he wasn't able to dispel her esper power like usual.
We might find out definitively if Touma's IB dispels magician's powers if he touches their hands in Volume 8 of NT because he might be holding hands while fighting
I think that the argument that too great a power stops IB from working properly is definitely valid... Though I am curious if the true IB can negate from a distance... and seal powers... there was a hint it might have done so in volume 22 even though that was more likely fear. I'm not sure if it actually has a larger radius of effect, but it would be cool.
