Should I apply for a position that I am interested but not competitive enough?
Let the hiring committee decide whether you are competitive, rather than assuming you are not. Apply and make your best case that you are the best person for this job. The decision will be made on a variety of factors, not just a count of papers. A person needs to be "fit" for the position and that will mean different things to different people. 

And as for 2), don't do that at all. 

Part of your application will show works in progress, of course. Especially if you have submitted papers that are not yet published. If the job includes teaching, show that you are good at that. Don't leave anything out. Don't assume that anything is unimportant.