This is the elephant in the room. Germany was the heart of the empire, not Italy. He had to summon German forces to put down Italian revolts, which means if he is unseated in the north, he's done for. His "Caesar reborn" routine was pretty over the top, and neither his Byzantine affectations, nor his Byzantine wife, nor his prolonged absence from Germany are likely to endear him to the northern magnates whose support he needs. I don't know if there's a plausible alternative to him in Germany, but if he keeps it up I'd wager the disgruntled nobility will coalesce around someone.
One interesting thing to consider here is that if Otto lives, he presumably marries Zoe as planned, and presumably they have kids. If so - assuming all else goes as OTL in the east - when Constantine VIII dies in 1028, the only direct Macedonian heirs other than the childless 48 year old Theodora will be the sons and/or daughters of Otto III and Zoe. There's no way in hell a "united empire" could ever happen, but considering Otto's obsession with being the new world emperor I wouldn't put it past him to try. That is, of course, assuming he manages not to get deposed in the interim.
A Sicilian conquest is possible, but Otto was really at the distant end of his reach in southern Italy, far away from his center of power and sources of soldiers. The Norman conquest of Sicily was a 30-year project, and I'm not sure whether Otto will be able to sustain that kind of military effort considering how distant that periphery is and how many other matters will require his attention as emperor in the west.