how far is too far?
Its hard to tell for sure, but I don't think you have a structural issue with that rim joist. Although there was some fairly shallow rot, you're not dealing with a header that is in span between two distant bearing points. I'd be more concerned with removing small sections of rim. In order to effectively do it without creating structural problems, you'd have to add studs under both sides of the new sections of rim to support the splices. I'd also suggest strapping the new to the old rim if you go that route.
It appears that you've removed the entire piece(s) of siding. What I would suggest doing is sistering new studs alongside the ones that have rot at their end grain. If that end grain is weakened, the studs' ability to transfer the loads downward to the floor/rim is compromised. Adding another stud tight to the underside of the rim will take the damaged studs out of the structural equation. If there are wires in the wall that would require removal to facilitate a new stud's installation, I'd suggest turning the new stud 90* so it is flat in the wall, flush to the outside face of the wall. Nail through the old stud into the new one, and through the new stud into both plates.
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