the perturbation of the middle knot damps out very quickly as you traverse (S-shaped) Cornu spiral segments, but doesn't damp out at all with the circular arcsIKARUS' circle fitting method is actually well damped, and behaves much more like the second example (as does METAFONT's IIRC).
I'm willing to tolerate a significantly larger number of primitives in this internal representation than either input through the UI or exported into a font file format after all manipulations have been doneDoesn't this have some major implications for hinting? I get the impression from FontFocus that stroke-oriented hinting is still a favoured approach.
I keep mentioning IKARUS because for many years it was the gold standard for these purposes... it's interesting you mention auto-tracing. URW produced a rather nice companion program which traced bitmaps into IK format, called LINUS. I still have a copy of the Mac version.