Thanks for the detailed explanation and insights.
"IAM/RBAC on the host storage account using system assigned managed identity of the function app, so that we don’t have to worry about rotating storage account keys".
- This would be the ideal approach however as you mentioned, the feature is still in preview and you will have to wait for it to become GA. Until that time, you can continue to use the storage account keys
"Implement Network ACLs on host storage account so that only the subnet that’s used for VNET integration by Windows Elastic Premium Plan and Function apps are allowed access to it, using the Service Endpoints".
- This is also the recommended approach, there is no need to create two storage account. The first storage account that was created can be used to implement ACL. Could you please let me know what is the error that you see in the File service? Please provide screenshot.