I've run into this a few times. For slight out of level situations, I do what both of you have done: 1/2" notch to get max flexibility when setting the tiles.
I have also had situations where the out of level was too much to correct with a big notch trowel, so I dammed the area and leveled it before I set the tile.
With a 1/16" grout line, it's going to be difficult any way you do it. My bathroom floor has narrow grout lines and there's absolutely NO margin for error with marble tile. I've got some ridges.
Wider grout lines work out better, but don't look right with some tile/marble.