I too was in the position of having a desktop A1200 and wanting to upgrade it without going for a tower, after lots of messing around I've ended up with a A4000 desktop with about every card I could fit in it, I guess its the nearest compromise :-)
Regarding the flicker fixer either of the DCE ones are good, I've owned both, the external one would limit you in this case to just having a monitor output, but you don't even need to open the case to fit it.
The internal one is good (currently using it) and would still leave your normal Amiga output port free to be connected to a TV (so you could run a monitor and tv - depending on output frequency, without unplugging anything). I do something simular with my A4000 using the Amiga's output via a scart switcher to the tv for video work/some games just for the bigger screen, while I have a proper monitor for the workbench. It saves a lot of unplugging.
The downsides for the internal flickerfixer/scan doubler are you probally will need to remove some/all of the metal shielding, and you'll need to cut a port in the desktop case to add the extra VGA connector to make a tidy job.
I'd say if your prepared to go without a Graphics card, and you don't mind external boxed drives with all they're cables (at least a CDROM and maybe SCSI hd) then the desktop is still a good option with a Blizzard 1260. OS wise I'm still using 3.0 too, but I've had to add PFS3 to use >4Gb hd's.
Or will you end up with a desktop A4000 in 6 months time ? :-D
