I've gotten all kinds of pin holes in tarps. Just throw some seam seal or tape over it and it's no problem. My last tarp almost had more duct tape than nylon but I got a ton of use out of it and it was super cheap ($20).
You are right about sparks not affecting tarps when they are wetted out, which is good because you need to keep the fire sheltered in the rain (more chance of a spark hitting). If there is no wind then pitch it high like a canopy. If you are going to make a bigger fire under the tarp it's best to pitch your tarp so it's flat or even slightly concave. If you have a high center point, like if it was almost a pyramid shape, then the heat can collect there with no way to escape and potentially melt the nylon. An A-frame is better because even though it has a high point, it vents out along the ridge, however flat is the safest.
90% of avoiding sparks is choosing wood that doesn't pop. Hardwoods like oak, manzanita, madrone are the best while really resinous woods like cedar and some pine are bad. Redwood can be the worst, sometimes a big burning log will launch quarter sized chips of hot coal at you. I've slept within a couple feet or less of oak/madrone fires and I'm not worried. I'm actually thinking about creating a silk bivy for my down bag so I can dry it out by the fire while winter camping without worrying about stray sparks.
It is possible to keep a fire going without keeping it under your tarp. Placing it under a dense tree canopy is the most important thing. And it needs to be a big, hot fire. When you place a bunch of wet wood propped up above the fire to dry out, that creates more shelter for the fire. If you can do some sawing for dry wood and keep putting on 1/2 dry and 1/2 wet wood it will burn easily, putting on all wet wood requires careful placement and micromanagement. It's good to have the wet wood leaned to be above the fire so the moisture evaporation doesn't suck the life out of the center of the fire.
On one miserable night when I needed to keep the fire going to sleep, I placed a bunch of hot coals into my cooking pot. When I woke up and the fire was drowned out with rain (usually doesn't happen, your body will wake you up when you get cold) I used those coals to get it started again. That might be a good technique if you want to cook in the morning (i never do).