Of the two options you have presented, Derek, I think it just depends on how much you really want to use square dogs. If you have your heart set on that, you should go with the first solution because having round dogs will always feel second-best. However, if using round dogs won't bug you then choose option 2.
Alternatively, don't do any thing to the dog hole strip, but cut a 4-5 degree face on the dogs.
Cheers
Jeremy
Screwing up in new ways every day :)