Why the amount the Hephthalites were demanding too high to be gotten from any other way? Did Kavadh I have a realistic chance of beating the Byzantines, when the Sassanian Empire had just gone through a succession crises? Couldn't he have targeted one of the weaker polities bordering the Sassanian Empire?
In Sasanian propaganda, Hrom was portrayed as a tributary vassal state. There was some truth to this, as following the devastating campaigns of Shapur I, the Romans did pay mind-boggling amounts of tribute to the Sasanians (from the Roman point of view, it was just cheaper than paying for an army). So, Kawadh's decision to wage war for tribute wasn't something that came out of left field, and choosing to raise taxes instead of waging war for tribute could well have meant undermining his own legitimcy. Moreover, Kawadh was probably a reformer (according to Touraj Daryaee, many of the reforms attributed to his son Khusrau Anushirwan should be credited to Kawadh instead) and likely engaged in some struggles with the nobility.
More pragmatically, Touraj Daryaee has also noted that while the Romans paid tribute in gold, the Sasanian economy (such as from taxing trade at the Indus river mouth) appears to have revolved entirely around silver. We don't understand the workings of the economy well enough to say for sure, but there may well have been economic concerns dictating the choice of precious metal for taxes and tribute.
Kawadh did not really have any better options for extracting large amounts of tribute. It is unlikely that attempting to tackle the mighty Gupta Empire in India would have been any easier than fighting the Romans (possibly harder).
Did Kavadh I have a realistic chance of beating the Byzantines, when the Sassanian Empire had just gone through a succession crises?
Yes, absolutely. As other Shahanshahs had showed, and as Khusrau II would show a century later, the Sasanian military was formidable enough to pose an existential threat to the Romans. One of the weird things when studying succession crises in the Sasanian empire is that the great noble houses tend to be conspicuously absent in them - instead it's usually a game of the claimants vying for support from the Armenians, the Romans and/or the Hepthalites. We don't understand how exactly the dynamic between the king of kings and the powerful nobles worked, but the succession crisis was probably not the devastating civil war you might be imagining.