I agree with you Witchkingx5.
I'll add that I'm thinking the first Virtual Set (and just the first) should take approach 1 (fixing the banned cards). There are a specific number of them (like 20 or so), so it would be a good exercise for the "Dream Team" to show how it can design, produce, distribute (via V-slips and perhaps GCCG), and play-test a Virtual Set successfully.
Once that achievement has been successfully reached (proving that the "Dream Team" can provide quality work), then further Virtual Sets using more of approach 2 (remaking cards) can be pursued. These Virtual Sets should then stick to a "theme" (Hobbits escaping the Nazgul, Rohan deceived by Saruman and Evil Men, etc.), rather than just make random weaker cards more powerful. If virtualizing a currently weak card fits into a "theme", even better.
...more of my two cents.