If we're going for "valid and internally coherent logic that Tolkien nonetheless did not think of when writing," I rather prefer your logic! It fits so much better with Tolkien's universe, after all, and the chain of logic is very solid, which is why the fic itself was so brutally effective! I think the biggest leap you made was the one about how only kings/royalty would be able to work the metal (and I found that a bit of a leap only because I think I've read somewhere that there was mithril in Valinor, or other places besides Moria? And I'm pretty sure elves -- like Celebrimbor -- would have been working with it too. Of course they would restrict the metal to people of high rank but is it necessarily as codified as that, to be so very directly linked to status?) but even that was pretty solid logic. And Thorin giving it to him -- yeah, he was in a ~fit of generosity~ when he gave it to Bilbo, life seemed pretty good with all the treasure in Smaug's lair -- though I guess I always assumed that Thorin was only so generous because that coat wasn't really worth that much in relation to some of the other treasure there. The Hobbit sustains that interpretation but then comes LOTR to enlighten us on the true value of the coat (and then come feels after....) There's more stuff like that, I think, where reexamining Hobbit in light of LotR turns up some pretty interesting stuff.