Using decoy proteins to treat viral illness
This is indeed a reputable strategy (#1,2,4) for rapid response to novel pathogens.  See https://phys.org/news/2020-01-scientists-decoy-molecule-neutralizes-arenaviruses.html and the open access article it cites https://www.nature.com/articles/s41467-019-13924-6

In the case of coronavirus, however, there is an issue (your #3) in that ACE2 is an enzyme that catalyzes the breakdown of a circulating hormone, angiotensin II, which is responsible for maintaining high (or normal) blood pressure.  So the "bait" used would have to be at least somewhat altered from this.  You would probably have to take into account how it affected other protein interactions such as with integrin beta 1 ... (see articles like https://europepmc.org/article/MED/14754895 ) to avoid getting caught up in speculation, it makes sense that a neutralizing protein might be made from part of ACE2 just as a neutralizing monoclonal antibody could be made, but you still have to have something specific before you can test for safety and efficacy.