Yes, I'd be willing to bet that the manual boost controller is the source of your problem. WRXs general don't take well to MBCs, and while some people will argue that the older 02s could handle a MBC better than the new models, they still cause can issues like PTFB (part-throttle, full boost) which is still dangerous and not working risking if you can help it.
Stock boost is around 13 psi, and 16.5 psi is about the highest you'd want to boost the stock turbo. If you're smart, you'll immediately ditch the boost controller and get yourself some proper engine management instead. Engine management will instruct your injectors to provide proper fueling to match your increased boost. As it stands now, your boost is increased, but your fueling has not been increased to match it, causing you to run lean, so yes you are correct in assuming there isn't enough fuel. Running lean makes the engine run hotter, and can certainly cause damage, especially for extended periods. When you run lean enough, the ECU must intervene and completely cut the flow fuel to your car to stop the lean condition, causing the cutting out effects that you are presently experiencing.