I agree with that last point. It's a natural progression that's probably been in place since the beginning of time. I believe there is a point in the progression where the attempt at doing anything is essentially an effort in futility, that nature has taken a strong enough foothold that anything done can at best, delay the inevitable. This goes along with the conventional thinking and practice. Still, I'm of the school that doing something is better than nothing, though if the condition is too far progressed I may go as far as to make it aesthetically appealing, but only if the clients wants and is willing to pay for it. If I believe the condition can be arrested, I will do it often for free for the sake of the tree.
Catching wound sites and/or abscesses early on I think, holds merit, though painting is still useless (as proven) unless it creates an aerobic barrier or provides fungistatic or fungicidal protection. If the coating simply kept the interior wood intact so that the callus had a hard surface to grow over, that could be useful. Fungal biology needs to be considered minimally as much as tree biology if we're ever to truly come up with a solution.
Wounds at the base of the tree are especially bad, though, because of the proximity to the earth, the coolness and moistness, the direct contact with all the bugs and microbes of the soil.
I wish I could offer a solution, Dean, but I don't truly believe there is one except to promote excellent health (soil amendments, fertilization) and prune to prevent the tree from growing to it's genetic height (encourage a stouter, sturdier tree).
I agree with your excavation to assess how far the decay has gone. You mention carpenter ants attacking water-damaged wood. I know what you mean, but it is not water that damages wood. It is fungus. All fungus needs is wood, water and oxygen. The ants come in and feed on the fungus, whose powerful enzymes have softened the wood (decay). The ants tear into the wood and feed on the mycelium, and tunnel to create galleries and nests, a home surrounded by food. Pretty good deal for the ants.