I would have properly do a prequel to ANOES, with Jackie as Freddy but with a new story to it. It would be a combine sense of ANOES and Freddy's Dead backstory stuff.
I would have it as a pre married Donald Thompson (as played by Ray Stevenson) arriving in Springwood, where it basically him against Krueger, both on a friendly sense and him against the Springwood Slasher scale. And I would have Krueger, both as killer and member to the PTA and community. I would try and show that Freddy did have a life and that being a father and husband was the sanity in that life, until the cracks begun to happen.
Everything basically ends with a massive fight that leads to Freddy's arrest due to kidnapping baby Nancy (since she would be the void that Freddy's daughter left after they took her away). However, since Donald arrested without a warrant, Freddy is a free man which leads to Donald and the parents burning Freddy, with the film ending with Freddy swearing eternal vengeance.
I've had a very similar idea for a NOES prequel. I was gonna call it
Elm Street: The Nightmare Begins. My story was almost the same as yours, except for Freddy kidnapping Nancy. And the parts taken from
Freddy's Dead because let's face it, that movie was crap.
No, I'd take story elements from Episode 1 of
Freddy's Nightmares and Issue 1 of Marvel's short lived NOES comic series from the early '90s. Have his victims all be the older siblings of Nancy, Tina, and all the kids in
Dream Warriors. Show how he got arrested. Why he got set free. And how the parents of his victims track him down and burn him alive.
While I wouldn't make Freddy father, I might at least give him a wife or a girlfriend. Someone to "help him blend in". And as you say, have him behave friendly and helpful at first. But as the bodies begin to pile up, and the police and FBI begin to close in on him, his facade begins to crack and eventually falls apart.
As for casting? JEH is okay, but I'd rather bring back Robert Englund. The role doesn't require any fantastic fight scenes or anything, so age isn't really an issue. Besides, Wes Craven's original concept of Freddy was that he was a creepy old man. In fact, Robert almost didn't get the part because Wes thought he was too young. So a 60 year old Robert Englund playing an unburnt Freddy should work just fine.