What Len says makes sense to me and I had been thinking that cutting the flange off is possibly avoided by capping it with a s/steel U section, made by cutting square section stainlessteel tube(316grade) in half.

This is then epoxy glued and fastened on, making a clamp like finishing trim piece that  will to some extent retain structural integrity of the join area.

Later on, a wooden trim strip could be added.

You're right, Scott. I wouldn't fancy taking that on. I hadn't factored in that toerail.

I think Annie's approach has the most going for it. This is what I would do:

1. Clean the outside edges off a little, but not too near the bolts.
2. Take the bolts out.
3. Fit a piece of wood to the radius between the hull and flange, clamp it in place, drill down from the top, bond it on using temporary (waxed) bolts in some of the holes.
4. Fit a piece of wood to the radius between the deck and flange, drill up from the bottom, counterbore all holes, bond it on with permanent bolts, bolt heads and nuts to be below the surface.
5. Plug the holes and clean up.
   
6. Fair up the outer edge, and bond on a thin strip of wood, using small temporary screws.
7. Take out the screws and round off the corners.
   

This would add a lot of strength and waterproofing, and would obviate the need to do anything inside (though I might fill up the groove with sealant, just for luck).

You could grind, or whatever, the existing flange down to the width you've chosen. I'd glue a piece on top, clamping.  Then one underneath, ditto.  Plane to a fair curve and then glue and scew a capping (maybe zig zagging the screws above and below the flange).  Remove the screws so that if you damage the wood, you don't make matters worse by wrenching screws about.  Lots of ways to skin this cat.

Have you done the sums on 35 hours labour?!

Thank you for all the input, everyone.  I love the variety, and I'm mostly encouraged by the fact that nobody said that it's impossible.  David Tyler and David Thatcher came closest with, in essence, "It's doable, but is it worth the cost?"  

Zane kinda nailed where I am on it - I really hate that rubber bumper, the filth that collects under it, the crappy way it's designed.  And unfortunately it's what I see when I look at the boat.

The deck and hull are getting faired anyway from the other work and painting - so that's not really extra cash.  The builder estimated an extra 35 hours work to cut off the flange and glass it over. Either he or I will glass the interior side - which it sounds like we're all agreed should be done whether the external flange stays on or not. 

Annie: It will definitely get a wood rub rail added to replace the rubber bumper - I don't see how I could do the rail without grinding off the flange, though: the flange sticks out a good 1.5 inches from the hull, right at the top of the topsides.  A timber rail around al that would have to be really big.  Is there a way around that you were thinking?

"If it ain't broke, don't fix it".

Is the joint leaky or structurally weak? If it is, glass on the inside will fix it. If not, no need to waste time and money. If there's doubt, a little glass inside will give peace of mind.

You don't like the rubber on the outside - fair enough, it's probably old and in poor condition, and ripe for replacement. A rubbing strip that stands proud of the topsides is generally a good thing anyway, to be sacrificial and save the rest of the topsides from scrapes if you have an argument with a dock wall. So I'd spend the money on replacing the rubber with iroko or other suitable and available hardwood. That will add strength, where the rubber doesn't. Leave it bare, or oil it.