You're mostly correct. As to your questions, think about it this way... Disclaimer: this is a perspective of a gamma trader in my world, so take with a pinch of salt.
Firstly, when if you delta-hedge in the real world you need to make discretionary decisions about when and how much delta to hedge. If we leave aside the transaction costs for the moment, you already know that if you delta hedge continuously and the option is fairly valued, your relative return will be zero. If you don't delta-hedge at all, as you pointed out, your return will be what you mentioned in point 1. Around these two extreme outcomes lies the uncertain path-dependent return that you produce with your specific delta-hedging methodology. Different people have different rules that they follow and there is a lot of variation.
Regardless of the methods, it's easiest to think of the outcome this way (and we're leaving aside the mark to market aspects here, this is accrual accounting; also this is a gross simplification):
1) you have bought a call w/IV of X.
2) on a given day I you delta hedged, such that you bought some quantity at price P1I and sold at price P2I for a PNL of ZI; ZI is a measure of realised variance/volatility/etc that you've "locked in" for the day.
3) if ZI is equal to X*sqrt(T) (where T is time to expiry), congrats, you have broken even. That's why this X*sqrt(T) quantity is known as your "daily breakeven". If ZI is less than the daily breakeven, you didn't do so well on the day and vice versa.
4) Lather, rinse, repeat, until expiration
5) At the end your PNL is the sum total of all the ZIs over the course of the procedure. If that number is greater than the premium you paid, congrats! Otherwise, not so lucky.
This brings us to why our young turbulent friend is not so right. Observe that the premium you pay for the option is a certain, known expenditure. The delta hedging PNL is uncertain and depends on a lot of factors. In a high-volatility environment you will definitely have to pay a lot of premium, but will you be able to delta-hedge to recoup it? My personal preference is to buy "cheap" options and leave the selling/buying of expensive ones to other people.
My Z$2c... I cannot guarantee everything I've said here is correct. Hopefully, peeps can weed out any obvious silliness.
