I remember there was a patch at some point where they "fixed" this as being an unintended use of SoW. I never understood why. I used to have loads of fun kiting the hill giant in Commonlands with my ranger. SoW myself, snare hill giant, DoT hill giant, then run it around in circles while hitting it with my bow reapplying spells as they wear off. I think they did something stupid like reducing the damage you could cause to a mob that was moving towards you while you were SoW'ed but I can't remember all the details now. I don't know when they applied that patch, either, unfortunately. Not sure if it was before or after PoP dropped. The nerf may have been related to when bard Aoe/zone kiting got nerfed but I'm not sure.
Early on in EQ mobs with DoTs while moving only received 66% of the damage unless they were fleeing or feared. That was never on AK and won't ever be on here. DoT mobs and kite them and they take full damage. At some point rangers begin to deal double damage to stationary, non-rooted targets while using a bow and arrow. This is on our server. So you will do more damage to a mob that is fleeing or being tanked with your bow than you will kiting it around.
I have never heard of kiting itself being not allowed. The damage from the feeble ranger dots is hardly overpowering, anyway, and even archery pre-AA's isn't that exciting. But yes, you can freely do exactly as you've described.
I initially thought the damage reduction applied to all damage done while you were SoWed being reduced and not just DoT damage. I think the idea behind the nerf was that being able to use SoW to avoid taking damage while you whittled away at a mob was too unbalancing and unfair to players of classes that didn't get SoW. And using ranger DoT's isn't so much about doing massive damage as it is about screwing with the mob's HP regen so if you go through a period where your bow isn't doing maximum damage for several shots then the mob won't be healing during that time because the DoT is actively countering their regen.
Yes, having done it a ton myself I agree with you. The nerf, though, was against DOT damage only. Kiting itself was never an issue that I recall.
Druids were soloing red avocets at the chicken city in SK in an era where groups would need downtime after killing a blue and wizards would melee with their little daggers rather than stare at the spellbook. SoW plus snare was somewhat unbalanced in the context of those times...