I'm sorry, but I don't have a good answer for you. I did some further research, but ended up having the pool re-plaster and re-tile done without doing the deck, and planned to do the deck later with a different contractor. Then a career change and health problems took priority, and it's still not done.

After further research, I found a contractor with a good reputation who recommended #2 -- grind only the flaking area and apply the modern product which I started to hear referred to as "acrylic lace", and a coating on the sound Kook Deck. Probably with the risks and disadvantages mentioned in the original post, but 4 years later there's been no further peeling of the Kool Deck. The cost was low enough that the risk seemed minimal even if it had to be completely re-done. But as I said, I've not tested my latest theory yet, and the health problems may mean a new owner gets to make the decision