I am fairly certain that IUS doesn't make your attacks lethal, in game terms. I typically warn against "rules-izing" the fluff.
Allowing IUS to make your attacks lethal infringes on the territory of Natural Weapons.
For the cost of a feat, I am fine with it competing with natural weapons. Compared to Vesk natural attack, it still wouldn't have the improved weapon specialization damage, though it would be doing more dice-based damage. Also, there is no reason that a Vesk player couldn't have both.
It is probably a houserule, but it doesn't seem to be an overpowered one.
And even doing lethal damage it still has the archaic property, so would be nowhere near as powerful as natural weapons. I think having it only dealing additional nonlethal archaic damage makes it a weak feat.
When unsure, I tend to look at Starfinder feats as "updated" from Pathfinder ones (e.g. Toughness combines Pathfinder's Toughness and Endurance feats) and in that one, Improved Unarmed doesn't scale damage by level (but then, neither do weapons) but specifies it is lethal and allows you to threaten squares... the Starfinder version also mentions the threatening squares. I believe therefore that RAI improved unarmed does lethal but still archaic damage.