My understanding of it is, .......
...just slightly off the mark
Whilst much of what you say has been bandied about for some years, the truth is that there are many issues within the K series engine which combine to give rise to a high rate of premature failure - all headgaskets on all engines are a weak point, and will almost certainly fail at some point, but the apparent average for the 1995 on K series is about half what Rover had originally aimed at/expected.
The issue effects the reworked K series engines which were built from 1995 onwards (the point at which the blocks were redesigned to accomodate cylinders for 1.6 and 1.8 litre capacities in addition to the 1,1 and 1.4, which were all that the K was originally intended to be.
The injection moulded plastic location dowels were introduced to reduce the problem of head face damage during the locating process at Powertrain, and were introduced in 1991 (several years before BMW took control of Rover Group), and they were superceded by a return to metal dowels in 2001. The plastic dowel issue can probably be regarded as a bit of a red herring - they were used on the original 1.1 and 1.4 litre design of K series engine prior to 1995 (and these earlier engines did not have a particular propensity for HGF), and the head gasket failure rate for the post 2001 engines which were fitted with the metal dowels did not appear significantly different from the failure rate of the engines with plastic dowels.
It has been often reported that the issues with HGF became apparent whilst under BMW ownership, but at the time neither Rover Group nor their BMW owners were unduly worried because the K series was due to be phased out in the early 2000s when the new BMW engine plant at Hams Hall began production of a new engine for the Rover range (also to be fitted to smaller BMWs). The disposal of Rover Group effectively cut off this supply of engines, and MG Rover didn't have the finances to afford to pay out a lot of warranty claims, so they were rather forced to try to bluff it out by denying that there was a problem.
In response to being given grief by Ford (who by then owned Land Rover), a head gasket development program started around 2002, and culminated in the production of the standard Multi Layer Steel head gasket that became available first through Land Rover in early 2006.
There is also the not insignificant matter that it was several years before dealership technicians and engineers at Powertrain became aware that there was an issue with poor sealing of the Inlet Manifold Gasket, which allowed coolant to leak into either cylinder 1 or cylinder 4 (or both). This lead to coolant loss and a misfire which was routinely assumed to be HGF, and of course it was standard procedure to remove the manifolds and replace the gasket during a normal head gasket replacement - it is thought that a great many presumed head gasket failures and head gasket replacements were carried out where in fact, it was probably only an IMG failure. Rover initially replaced the original black silicone elastomer IMG with a redesigned one which was green, but even these seemed prone to leakage, and it wasn't until after the Chinese takeover and reworking of the K series that a more robust viton IMG became available, and this seems to be a cure for IMG problems.
Likewise (from my own experiences), the newest multi layer gasket which was used in the Chinese produced versions of the K series, seems to be a fairly solid and reliable head gasket, with few if any premature failures reported (and also seems to be a reliable solution when retro fitted to the Rover Group/MG Rovere era engines).
I really would recommend a read of Des Hamill's book - it goes into some detail, and makes it very apparent that ther were multiple issues with the 1995 on K4 - premature HGF were not down to one single factor
Regarding the potential tie-up with Proton - it was probably a very good thing that they couldn't reach an agreement, I don't think a Rover based on the Gen-II would have done MG Rover any favours TBH.
Likewise the discussions with FIAT - MGR had been planning to use the JTD diesel engines in the 75/ZT to get away from having to buy in the BMW units at high cost. They had several prototypes fitted with the JTD (some of which got sold off by the administrators and are still about), but FIAT turned round and hiked the price, forcing MGR to walk away from the deal. Likewise, the Stilo platform was well beyond what MGR were able to afford by that time, so there never was any possibility of that deal coming to anything.
Matra also offered MGR a Roverisation of the Espace (which thay had designed and manufactured for Renault), and I believe MGR would have been very agreeable to having Matra continue production of the Espace in Rover guise, but again, the money to pay Matra for it simply wasn't there. It is a shame, because a people carrier would have been a valuable addition to the range at that time, and the Matra Espace was well liked and respected among Renault owners at the time - Renault's own in-house designed and manufactured replacement for the Matra designed car was a little less than well received by Renault fans.