I was wondering given a great step 1 >260 will below average third year grades kill my application (say a couple passes, high passes, and maybe 1-2 honors at best)? Would a research year make up for it (say I have like 2 derm posters and 1 paper right now)?
A research year never hurts, but the extent to which it helps likely varies.
The >260 Step 1 will get your foot in the door; the research (particularly if you're doing it with someone who is well connected) could help you a lot. Grades are also relative: if you are getting those grades at a top 10 school, you probably don't need a research year