Dear Brett,
Thank you so much for checking with the designer on this important question, and for the two options you have confirmed based on the answer. For existing designs therefore it appears that the second option would work better because one could create a workaround by connecting just the IOVDD to, say, the EEPROM's VDD so that one could still program the EEPROM in-circuit with the DSP powered "off". It would be interesting to determine what the power consumption of the DSP chip would be with just IOVDD powered and I suppose that would be much less than when it is fully powered up - which would essentially serve the purpose of powering down the DSP.
I suppose one could still nitpick on that I2C spec statement and conclude that the ADAU1701 does not conform 100% to the I2C spec for fast-mode devices, though!
Thanks again.
Best - Ram