First of all it would be the unfactored ALD that you would apply since you're in flight. The 1.67 only applies to the planning-stage, as you pointed out.
The answer to your scenario is:
'It depends..........'
Why do you have to discontinue your flight to destination? Are you landing performance limited at current weight?
When on fire I would definitely land ASAP applying the overweight landing c/l or not (time permitting).
With just a relatively small failure it would perhaps be more sensible to burn off the fuel in the hold in a high drag config.
Inter-polate between the two examples above and you will have your answer.