Re: 1b “public policy” is not law, so no it’s not “illegal” just against the betting site rules. Easily skirted by making the bet not directly about death, e.g. https://polymarket.com/event/trump-out-as-president-before-2...

Re: 2c also applies to scenario 1, if you get caught you can’t retain the money.

So, to your point about which is more regulated - there is no difference in the amount of regulation between the two scenarios.