Distribution method you mentioned definitely less controversial than other method i've seen. But aside from hard fork, it also add some technical complexity about changed mining reward & which Bitcoin from which vulnerable address/UTXO should be taken.
Would that be how the actual redistribution takes place? Or is it actually just a
free-for-all treasure-hunting of vulnerable funds?
No, what i and @d5000 discussed is mere theory, without any related serious proposal or BIP. It's not exactly treasure-hunting either, since @d5000 mentioned it's redistributed through mining with fixed amount can be claimed.