I reviewed the old message board and note you obtained your ILR in February 2004 under the 10/14 year Long Residence Concession. Based on this you would be eligible to apply for naturalisation as a British Citizen in February 2005 where you would have held ILR for 12 months.
I have also reviewed the discretionary details in the Nationality Instructions and my comments are:
Ch 18 Annex C sec 7.3 (e) - established links to the UK
This is where you are applying 90 days/3 months before the 12 month no time limit/ILR period - you are miles away so its irrelevant.
Ch 18 Annex C sec 7.3 (g) = delay in determination of an ILR application.
IMHO this would apply to where a case was considered under the immigration rules and was unduly delayed as opposed to a concession application. Concession based applications are in their nature subject to delays and the HO can argue that they had to verify your details especially given the checks they had to undertake in relationto the concession you were applying under. These include your Income Tax and NI records, criminal checks, employment references etc.
However as you have noted from your immigration experience to date the Home Secretary through his Home Office department has sweeping discretionary powers. If you put forward strong representations you may get lucky especially if it could be argued that the policy has now been formalised in the rules and is no longer a concession - this would have to be timed against your application date.
In any case if you review Ch 18 Annex C sec 7.3 (a) you will note that an application which is outstanding at the 12 mth no time limit stage would get approved so this may be an option given that current average processing time for naturalisation is 6 months. Further if you are still married to your BC wife then there may be no need to wait - I am not aware of anywhere in the rules that says you must be together/ not separated - all it says is that you must be married.
IMHO notwithstanding such discretion your other challenge is that pertaining to 'not being in breach of the immigration rules' - HO forgiving your illegality for ILR purposes does not mean it will be the case for naturalisation.
Good Luck
P/s I said BC wife as I note the exchange between you and vee on the old board - you studied at an all boys boarding school
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