Nitro,
Perhaps I can help make some sense of it for you, and I apologise for not being clearer earlier.
You ask 'where's the line'? Very good question. Essentially, it is where it ends up once all the various trades (performance, cost, time) have been made, measured, assessed and decided. As an example, say the customer wants Mach 2 capability (again, I'll exaggerate to make the point).
Getting the Mach 2 will drive the design - bigger engines, more fuel, larger wing, higher weight, lots more cost, probably extra time to develop the engine performance required within a lower weight, and so on. So, if the answers are outside the budget/time envelope, the team will start to trade. In a simple world, they would look at M1.9, and generate the figures. Then M1.8. Then M1.7. And so on.
Just to make it a little more complex, this speed trade study could be combined with other parameters being traded. (In fact, it almost certainly would be).
On F-35 the decisions on these trades rested with the customer. There were literally hundreds, if not thousands of such decisions being made in the early years of the programme, with LM briefs, plus very detailed input from the customer's technical and operational specialists. The outcome of that work is what has shaped the aircraft we see today. It certainly wasn't 'ad-hoc'. It may seem that way, but honestly it's not.
As KenV correctly identifies, an aggressive SME can make a big difference to the process. If you agree with the SMEs, then you say 'they did a great job'. In other cases, you could say that the design was driven the wrong way by SMEs. (This is, I understand, called 'the attack of the killer SMEs'). (Attempt at humour there). On F-35, both happened.
The F-35 is, as the title says, a 'strike fighter'. The customers never wanted a pure F-16 replacement, but an aircraft that could attack in a high threat environment, and defend itself as required. Personally, i believe that it should be the 'F/A-35', but there you go.
The F-117 would actually be a really bad place to start if you wanted a fighter. the 'F' designation was. I understand, a cover for the aircraft's main role, as a bomber.
I hope this helps a bit,
Best Regards as ever to those having to make the calls,
Engines