Let's use some common (and less common) sense.
The law is written in a manner that allows for interpretation. If it was cut and dry, we wouldn't be seeing the good arguments (on both sides) that we see in this thread.
Ambiguity in written laws is not uncommon. When there is ambiguity, it is up to the authorities to determine how THEY interpret the law, and then go enforce that interpretation. When someone is prosecuted using this interpretation, it is up to the courts to make the final interpretation. If the courts disagree with the authorities interpretation, the courts offer clarity and gives the COURTS interpretation. A court's interpretation trumps the authorities. And the only thing that trumps a courts interpretation is a higher court's interpretation (I.E. NAR/Tripoli vs. BATFE).
But this question of how the FAA interprets the law and how the courts interpret it, won't be answered clearly until someone flies a FG rocket that meets all other Class 1 definitions, and that rocket causes an incident that gets the FAA involved. After all, I don't see FAA officials driving around neighborhood fields looking to find violators of Part 101. It will take an incident/accident to get them involved, and then see how they, and the courts, react. That is the only way this argument will get defined clearly.