What happens if I set the change frequency of a page to daily and don't update it daily? Will this make search engine blacklist my site? What is the accepted changefreq to balance search indexing ?
Google won't blacklist your site if your sitemap is inaccurate! It is only a guidance that you are providing to google. Also setting high priority will not increase you page-rank.
Google About Sitemaps: Google doesn't guarantee that we'll crawl or index all of your URLs. However, we use the data in your Sitemap to learn about your site's structure, which will allow us to improve our crawler schedule and do a better job crawling your site in the future. In most cases, webmasters will benefit from Sitemap submission, and in no case will you be penalized for it.
I would suggest you to read sitemap gidelines.