You are correct, the subject of the clause "she might have passed over more" is Emma herself. The passage illustrates both Austen's pioneering technique and her superb irony. With regard to the former, John Mullan writes:
Emma ... was certainly not revolutionary because of any intellectual or political content. But it was revolutionary in its form and technique. Its heroine is a self-deluded young woman with the leisure and power to meddle in the lives of her neighbours. The narrative was radically experimental because it was designed to share her delusions. The novel bent narration through the distorting lens of its protagonist’s mind. ...
The narration follows the path of Emma’s errors. Indeed, the first-time reader will sometimes follow this path too, and then share the heroine’s surprise when the truth rushes upon her. Yet it is still a third-person narrative; Emma is not telling her own story. We both share her judgments and watch her making them.
Austen was the first novelist to manage this alchemy. She was perfecting a technique that she had begun developing in her first published novel, Sense and Sensibility. It was only in the early 20th century that critics began agreeing on a name for it: free indirect style (a translation from the original French: style indirect libre). It describes the way in which a writer imbues a third-person narration with the habits of thought or expression of a fictional character. Before Austen, novelists chose between first-person narrative (letting us into the mind of a character, but limiting us to his or her understanding) and third-person narrative (allowing us a God-like view of all the characters, but making them pieces in an authorial game). Austen miraculously combined the internal and the external.
The Guardian, Saturday, December 5, 2015. Accessed March 23, 2023.
In this free indirect technique, every incident, thought, and feeling is presented from Emma's point of view—how things appear to and affect her. The passage you exemplifies this: it is Emma's thoughts that are being reported, not Isabella's. It means, "Emma would have ignored greater faults [than the ones she sees] in her brother-in-law's treatment of Isabella, if only he had been more flattering toward herself". This is what marks the pioneering nature of Austen's narrative: we are given Emma's, and only Emma', point of view.
Yet the passage also points to Austen's celebrated use of irony. She tells us that Emma feels somewhat slighted by her brother-in-law. Why? Because his manners are not flattering: "they were only those of a calmly kind brother and friend, without praise and without blindness". Accustomed as she is to receiving praise from all quarters, Emma holds it against her brother-in-law that he sees her objectively, without being blind to her faults. Austen is poking fun at her own heroine here, showing how entitled Emma feels to uncritical adulation, how deluded she is in her self-assessment, and how warped her judgment of those around her is. The entire plot of Emma relies on this contrast between Emma's point of view and the reality of a situation. We see things only from Emma's perspective, but on re-reading, we can spot these clues Austen gives us throughout that perhaps this perspective isn't to be entirely trusted.