There is a definite tradeoff, and it would be silly (or arrogant) for me to write an authoritative rule. Your point about adding modularity potentially introducing bugs is spot on correct. Of course, test freaks would suggest that unit tests will catch that. (Hopefully...)
Besides the complexity concern, I hate to be stuck with a bad interface for backwards compatibility reasons. If you modularize too early, there are two yucky possibilities. Either your interface is too limited for the general uses and you'll have to rewrite code anyway, possibly creating bugs, or you'll have to write an overly generic interface, adding more complexity in the hopes that you'll catch all the ways you might want to call the function.
In my experience, by the third time you use a piece of code, you'll know enough to write a good interface.
Besides all that, the cleaner your code, the easier it will be to modularize. By the time I get over 100 lines, generally I'm writing functions anyway. There's a definite intuitive understanding that's not coming across in my posts very well...
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