Does spy mining negate the harm caused by big blocks on decentralization?
No, it temporarily attenuates the issue, but doesn't resolve the problem. A spy miner gains less reward for an empty block than the large miner building on its own block. Currently, transaction fees make up about 11.7% of the block rewards (average over last week). As the subsidy decreases in the longer term, the transaction fees are expected to make up an even greater relative portion.
Larger blocks would exacerbate the issue as the spy miners would spend more time in the state of reduced revenue, which translates directly to reduced revenue for whomever didn't find the previous block.