In the original scenario, I think the keyword is VFR.
I always thought the height requirements for same were not below 500' AGL, including the highest obstacle within 2000' horizontal distance of the flightpath.
Aren't the references to MSA and 5NM a bit red herringy? They would certainly apply to IFR flight. If the hill was in an area of desicnated mountainous terrain, the MSA would be 2000' (IFR).
Or am I misunderstanding something here?