Interesting question and I only can give some hints.
Because of the pressure-velocity interaction, the time integration of the Navier-Stokes Equations has its own stability issues. So I suggest you first try your stabilization for a convection-diffusion equation for a scalar quantity $\rho$.
Then you should give some more thoughts on what is the right weak formulation of the fourth order term and what are the right finite-elements to use. E.g., if your ansatz functions are not smooth enough, you need to take a discontinuous Galerkin framework.
Regarding the weak formulation: The commonly used identity $(\nabla \cdot v, q ) = -(v,\nabla q)$, where $v$...vector and $q$...scalar, is only valid under particular conditions. In your case, the '2nd' application is not justified, because $\nabla \cdot (\nabla \rho)$ will not be zero at the boundary. That's also the reason, why you get different results depending on your formulation.
Furthermore, $\nabla v$ is actually a tensor and the relation of $\nabla \cdot (\nabla v) = \Delta v$ includes some assumptions (like $\nabla \cdot v=0$) that may not hold in a repeated application.
All in all, I do think it is a question of numerical analysis rather than of fenics implementation. If you have the equations ready, you may try to get help at http://scicomp.stackexchange.com/