Hey TJ, long time no see! We've met a couple times at TGD, hope I'll see you there again this month - seems you've made some good progress on Phase since I last saw you show it off

I have to agree that clicking on the map arbitrarily is just not gonna fly, especially as I hope to support game pad controls eventually. I have two concerns about the second approach, however: one, that it won't be easy to tell which exit leads in which direction; and two, that it either breaks the seamlessness I'm going for or overcomplicates the simplicity of 2D graphics.
You make a good point about Zelda. The top-down camera angle affords all the simplicity, continuity, and readability I want to achieve. My map offers that angle, so I think the best bet at this point is to pause when the player is about to leave a location, enlarge the map to bring it into focus, and let the player choose a direction to travel in at that moment.
Eventually gameplay will encourage the player to plot their path through multiple locations ahead of time, so hopefully that information when available can automate direction selection, making most journies pretty smooth.