motorized kodiak: if your chain has that much
up and down movement you are looking at alot of problems. If you are sure that you will have enough rear wheel adjustment to make the chain work properly, definitely remove one link and re adjust the chain.
For both Toothy and motorized kodiak: the kit chain tensioners are notorious for slipping on the frame tube and going into the rear wheel's spokes, quickly ruining your day and possibly causing a crash.
Here is a thread concerning tensioners that are much safer. I linked to the style that I copied for my Atlas build, but I recommend reading the whole thread.
Also, I HIGHLY recommend NOT drilling any holes in the frame as some have suggested. A hole creates a weak spot that can easily propagate into a cracked frame.
Here is the whole thread http://motorbicycling.com/showthread.php?t=2063