I'd put myself solidly in Mikael's #2 category - Looking stock but modified for more modern electronics, better brakes, more power, better rubber, etc. - improving on the performance and reliability with some simple modern upgrades such as electronic ignition, modern tires, better brakes, new shocks, Pantera Electronics gizmos, etc. They just make the car enjoyable, and more of what it was, a fantastic state of the art car for it's day.
When I was looking for my car 14 years ago I had a hard time finding an "unmolested" mostly original car. Many had over the top engines and or questionable "upgrades" (modifications), and I wasn't willing to pay a premium for such modifications, only to have to spend more to undo them.
But, for years I've wanted another Pantera to modify into a modern supercar of sorts, maintaining a mostly original appearance, save for Gr-4 flares and a modern engine (but no wannabe Countach wings!), but my wife said I needed to hit a certain income level first! I've hit that level (and I think she forgot about our implicit deal) but now she constantly complains we have too many cars and she wants to "downsize and simplify our lives," which means sell one or more cars, as well as any of my other stuff she doesn't value.
But alas, the cars have become too expensive to fulfill my vision of a modern reincarnation of a Pantera.
As for modified cars watering down values, I think it's just the opposite! Those desiring a pristine original Pantera, or a car that's predominately stock with only limited safety/performance upgrades, will have fewer to select from, so if demand is constant (but it appears to be increasing) and the supply is fixed or diminishing, prices will (continue to) rise.
Then again, when I look at all the high dollar extreme restomods and custom builds of Mustang's, Camaros and just about any other cool old car these days I just might have to say the demand for "tastefully" modified cars may also be increasing. It seems a LOT of folks want modern performance and reliability in a classic package.
These are interesting times!
My 2-cents!