I have a few questions on the instalation of some AEM oversized rotors. First, there looks to be a dust guard which will prevent the bigger brake from going on. Has anyone grinded this off? Is this recommended? Second, does it affect the brake warning sensors? Thanks.

you shouldn't have to if it's an aftermarket kit. NOt sure though but erm the brake sensor is connected to the pedal, it has nothing to do with the brakes it self.