This seemingly simple system of cause-effect is at the heart of Buddhist karma. Thoughts, actions, and speech have no inherent "goodness" or "badness." Rather, every action, every thought, everything you say, is the result (effect) of previous causes, including free will, and will act as a cause for a subsequent effect. For example, killing incurs "negative karma" not because of some inherent "evil" in killing, but because the effect of killing is to cause suffering to another—and to yourself due to the unskillful mental states that precede killing (e.g. anger, jealousy, hatred).
Applying this to rebirth, we are not reborn as a "higher" or "lower" being due to an inherent moral or immoral sum of acts in life. Instead, Buddhism teaches that our rebirth is an effect of causes—and that may not correspond to the apparent sum of one’s actions in this life! Hence, Mother Theresa may have been reborn in a hell realm, despite her wonderfully generous life, based upon the complex of causes in her past and "current" life. However, she would also be certain to experience the effects of her saintly life as well. When and how, exactly, is too complex to predict.
The same concept shows why Buddhist karma does not result in a ladder-like rebirth system. Taking the Mother Theresa example, in a ladder system, she would have been expected to probably have progressed to the next rung, although even there it is possible that she did not learn her particular lesson for this life, despite her compassionate action. Buddhism acknowledges and accepts that the interweaving matrix of causes has many effects still operating, even if repressed in the psyche. Hence, there is a chance that Mother Theresa may have been reborn in a less-than-pleasant realm, just as it is possible that she was reborn in a god realm.
This last point refutes misconception #4. Karmic effects can cause rebirth as a god in Buddhist cosmology. There is no overarching, greater God or Goddess in Buddhism. Rather, beings may experience rebirth in a wondrous heavenly realm as an effect of the causes of their thoughts, actions, and speech. It is said that, in a godly form, these beings do have some powers that we, as humans, normally do not. But Buddhism still views these gods, who were once people just like you and me, as afflicted. Eventually, the god-being will die and then causes and conditions will determine his/her next rebirth. In actuality, Buddhism views a human life as most desirable because the heavenly realms are too pleasant to give one a reason to work toward perfecting their development of skillful qualities like generosity, love, and compassion, while hell realms and animal rebirths often make it difficult to get the chance to practice—life is too difficult and distracting. How well could you practice generosity as a deer when predators are always about? Plus, your mental capacity is reduced, making it that much more difficult. Human rebirth is considered most advantageous because there is enough suffering to prompt the need for a spiritual path, enough happiness to continue motivating your practice, and the best opportunity to be exposed to teachings to guide you on the path.
All that being said, Buddhism is predominantly a pragmatic path. It is not about philosophizing about metaphysics or thinking intellectually over propositions and concepts. It is not even about being compassionate or loving or generous. It is about BEING compassion, BEING love, BEING generosity, in the here and now.