As you indicated, Jesus was the perfect sacrifice, the most deserving of mercy of love. But that was true because He is God in the flesh - not because he entered the world as a baby.
"as it is written, 'There is none righteous, not even one; There is none who understands, There is none who seeks for God;" Romans 3:10-11
Mercy is not getting what we deserve; grace is getting what we don't deserve.
As for visiting sins to the 3rd and 4th generation, you should continue reading a little further: "You shall not make for yourself an image in the form of anything in heaven above or on the earth beneath or in the waters below. You shall not bow down to them or worship them; for I, the Lord your God, am a jealous God, punishing the children for the sin of the parents to the third and fourth generation of those who hate me, but showing love to a thousand generations of those who love me and keep my commandments." Exodus 20:4-6
Ron Paul - Honorary Founding Father