I guess what I'm trying to say is I'm clearly getting wrapped around the axle about navigation vs. aircraft avoidance.
In this case, it's really neither of those. Some of this stuff needs to be conceptually decoupled based on what the rules are intended to accomplish.
The visibility and cloud clearance rules of VFR flight in both controlled and uncontrolled airspace are designed primarily to promote visual aircraft avoidance in a 3D environment. In theory, anyway, we are required to maintain 1,000' above and 500' below a cloud deck is to give an IFR aircraft climbing or descending through a cloud deck time to see us. We need less than that - only "clear of clouds" in Class B airspace, because ATC is actively separating all aircraft. They, perhaps obviously, also have the effect of keeping us out of the clouds.
The rules of what is loggable as instrument time for instrument currency and other purposes, OTOH, are designed to require us to maintain a certain base skill level by accomplishing certain tasks while unable to maintain adequate aircraft control by outside visual reference - when we need the flight instruments to keep upright. (Whether they do that or not is something people argue about, but it is what it is.)
Notice that neither have anything to do with how we navigate. Even in a pre-GPS world, VFR pilots flew above cloud decks. While dead reckoning and pilotage are often talked about as a combined skill, they are actually different. Can't do pilotage when you can't see the ground; you can do dead reckoning. There's even such a thing as dead reckoning in the IFR world, although it tends to be limited to specific situations.
Neglecting the option for VFR on top which I've never done.
BTW, before someone else mentions it, one of those semantic things. "VFR On Top" is an IFR clearance. VFR above a cloud layer is "VFR Over the Top."