Should I decline to fill out a recommendation form after saying that I will do it?
You seem really to be overthinking this. You're writing a recommendation -- you're not the student's full-time advocate or cheerleader. Fill in the form, send it in, be done. If you want, to mirror the structure of the other student's application, write a supplemental letter also for this one, just a paragraph or so -- shorter than what you've spent time on in your question here!

By the way: there is nothing at all wrong with having your recommendation for one student look worse than another's if you believe the former is actually worse for the program than the latter. In fact, I've often explicitly written on recommendations that A and B are both applying, and that A is stronger than B. Your job is to help provide an assessment with which the program can make a fair choice among applicants.