I haven't heard of any adverse health problems with the microchip. In New York, at least in my county, all animals adopted from any shelters are neutered/spayed and microchipped. I have not seen any problems with it at all, not even any lumps, bumps or soreness where it was put in....But Duncan is much bigger than Tess also.
The biggest problem I have heard of with the microchip is that many vets and shelters do not have the technology to scan the dog. He does have a tag on his collar but if he was stolen, I'm sure the thieves would take that off immediately. I keep Duncan's collar on him all the time except when he is in his crate so I guess it would be useful if there was a fire or something and he escaped and I didn't. Also, if he was with me in the car and there was an accident... The company his chip is through has a next of kin form in case something happens to me, he will not go directly to the pound but instead to my family. If it's not expensive, it can't hurt right?