Hmmm... I wonder where/when the 'chipping off loose bits' will stop? Once you've gotten under whatever that is I suspect you can just keep going.
Which may be as good a way to go as any.. get rid of all of whatever's there, and start over with your basic plan listed above. I don't think you want to suddenly 'patch' selected areas with cloth and epoxy
, I think you'd want a uniform, homogenous coating if that's the way you want to go. The lead looks pretty fair, though, and maybe you just want to prep and paint