Would Coven be too powerful if I houseruled the hex to increase class level?
Coven is what might be called a “build-around” hex. Its benefits are very specific, and getting the most from it requires a very particular type of campaign. When you have such a campaign, its effects are fairly potent, but in a typical campaign it is almost-useless.
So the “primary” benefit of coven, the ability to join hag covens, is really a plot-ability; player characters will most likely never use it excepting in campaigns that revolve around it. It allows witches to join the covens of hags, which are generally-unpleasant, if not outright-evil, monsters. No hag is a playable creature,1 so the hag isn’t likely to come adventuring with you.2
The exception, again, is if the campaign revolves around this coven. Then the hex becomes quite useful, if not literally a requirement for entry.
The “secondary” benefit of coven doesn’t require a hag, but it does require at least two witches who have selected coven. Therefore, you’re looking, in most cases, at having at least two players coordinate to start a coven and both take this hex.3 To a limited extent, a single player could take advantage of this, through Leadership, but really that says more about the power level of Leadership, that it could kind-of salvage this hex, than anything else.
So with all this being the case, the coven hex is extremely niche. It does not make sense to select it in the overwhelming majority of games, and we haven’t even discussed what it does yet. No matter what it does, so long as it requires a hag and/or another person who has the same hex, it’s just going to be extremely niche.
As for what it does, there’s something of an issue in that hexes never say anything about caster level; even the ones that are spell-like say to use your “level” as the caster level of the SLA. So there must be some interpretation going on here for the Aid Another usage. Now, in a typical case, scaling effects (duration, damage, area, and so on) use caster level, while saving throw DCs use class level or character level, so I agree that coven would probably not improve the save DC, but this is far from certain.
Allowing coven to apply to the save DC would make it better, but still not worth taking in most campaigns. In campaigns where you want to take it anyway, to participate in a hag’s coven... it might occasionally be worthwhile to have the Aid Another option, but that will be pretty rare. Actually, the best use might be with Leadership, but don’t bring your witch-followers into any kind of combat scenario; a single fireball will kill most of them. If they (and you) all have coven, though, you might be able enact some pretty hefty rituals... but you’re still limited by the options on the witch hex list. Hexes that can be used out-of-combat and benefit from buffs to saving throw DC are kind of limited.
As for cauldron, no: the effect of the hex is that you get a bonus feat. The rules of that feat, and how it relies on caster level, are not part of the hex. But allowing it wouldn’t be a problem; usually people want to reduce the caster level of items they make, because caster level is expensive. Note that having higher caster level would not allow the witches to brew potions of spells they didn’t already have anyway. Also, bear in mind that potions are very, very weak.
So ultimately, coven is probably just a matter of plot, for NPC witches, and should only really come up in campaigns revolving around a coven. It’s a niche ability that doesn’t really have significant effect, and there’s not a lot to be done about that without completely changing the nature of the hex.
Weirdly, I think anyway, the “half-hag” race, changeling, does not get any benefits relating to covens. Even the changeling witch racial archetype doesn’t mention the hex or the hag ability in any way.
For the record, you cannot select any type of hag as a monster cohort with the Leadership feat. Why not, I don’t know; that could actually make this hex fairly interesting. But you can’t.
There are a few archetypes of other classes that can select hexes, like hexcrafter magus, so they don’t both need to be witches, at least.