I'm going to jump in here because my name was mentioned earlier (I THINK). I certainly don't have the expertise in Greek or in teaching Greek to weigh in on how to paraphrase any of Xenophon or whether Mark's paraphrase is accurate. I'm one of the B-Greekers who couldn't read it without outside help. I just knew what some of the words meant, but it basically threw me for a loop.
What I have suggested in the past is more of a "leveled reader" approach. This kind of approach would only serve the function of teaching students to read and comprehend Greek, and would not meet the needs of other aspects of language learning. For those not familiar with a leveled reader, it's basically the idea that if you can limit the complexity of the vocabulary, sentence structure, conventions, and other language features of the text, the person who is reading the text can focus on meaning and on allowing their control of the limited features to grow into mastery, thus allowing them to interact with a slightly more sophisticated text, which would allow the reader to focus on meaning, enabling them to progress to a more sophisticated text, thus the idea of "levels." As far as I am aware, nothing like this has been created. I know there are "graded readers" available (I used some in college), but this is really quite different. I believe the American Bible Society tried something like this to work with adult English language learners (such as immigrants to the US), but someone more knowledgeable than I will have to comment on that. The idea is to take a text, perhaps from the New Testament, but just as easily from any other Koine or Classical text, and to create several different versions of that text at progressing levels of difficulty. The first level might be a page with a few short sentences with only a predicate an a prepositional phrase, accompanied by a picture that shows what the page is telling. The next level might be sentences that fit more of an authentic Greek sentence pattern (although probably not the original, which would probably be too complex), including authentic Greek word order, but still not too far removed from level 1. Then as you progress levels, you come closer and closer to the original Greek text. I imagine something like this could be done with Aesop's fables, or some Greek myths, or anything else that would be motivating to learn to read and could be simplified. Something action oriented probably. I don't know if Plato or Aristotle is incredibly complex or not. I'm just not familiar with Greek literature.
One of the advantages to this leveled reader system would be that I, as a person learning to read Greek, would be familiar with the basic story if I started at level 1 and then worked my way up. Then, as I confronted new vocabulary, I would already have a good idea of what they mean.
The thing I liked about Method Three is that the whole point of the paraphrase was to help me understand the real Greek. If I was at that point, what my brain probably needed first and foremost was to be able to visualize what was happening. And if I already knew what ναῦς meant, then reading πλοῖον in a paraphrase wouldn't hurt that comprehension at all. It would just help me understand what was happening with the ναῦς. If I DIDN'T understand what ναῦς meant, then starting with πλοῖον would at least get me off on the right foot. The way I would learn the difference between πλοῖον and ναῦς would be in a text where both words are used, or perhaps on a "glossary" page with illustrations and captions and labels. Or, if this was a real story, and it's talking about war and attacking and defending, and the word ναῦς kept popping up and I kept seeing illustrations of ναῦς, I would start to connect the picture with the word. The same would be true for πλοῖον. So if I were reading the sentence from Xenophon and really couldn't understand it without some help, reading the paraphrase would be a welcome aid that would allow me to quickly turn back to the actual text. That's how I think Method Three could be quite helpful in learning to read Greek.
With regard to the leveled reading system, I don't have the expertise with Greek to even start such a project. But I am an educator, and I like to think about my craft, which means that I think about how we learn and I design ways to help people learn. So if someone else with Greek proficiency wants to work on such a project, they can contact me off-list and we can get started dreaming. At least until a big publisher takes such a project on and hires people far more qualified.
Jeffrey T. Requadt