Does this "should have withheld" mean "had to withhold"? "should have pp" is usually past regret or presumption, and this is a rare case.
For "she is going to far", my understanding is that Martha didn't want her biography to be published, but to be remembered as a legendary person, but her friend De Mille is exaggerating her life by writing her biography. right?
ex)The death of Martha Graham on April 1, 1991 finally permitted Agnes de Mille to publish her biography of the dancer, after nearly twenty-five years of work and four years of waiting. It is a measure of de Mille's respect for Graham that she should have withheld until after the subject's death what is by any standard an affectionate and appreciative account of her life and art, rather than risk offending Graham's own sense of herself in the slightest degree. De Mille seems to feel that she is approaching something truly sacred in discussing Graham, not simply writing the life of a rare artist and an old friend who had become a touchy old woman. She tells us in her preface that Martha had wished to leave a legend, not biography; and she knows she is going too far.
Yes it is natural and correct: 'should' commonly occurs in subordinate clauses conveying the speaker's assessment of, or emotional reaction to, an event, typically introduced by an expression such as 'It is natural that...', 'I am pleased that...', etc. It does not denote moral obligation of any kind.