" I was thinking of making an exception to the rule of no preserved wood on domestic structures, which makes sense for fire and poison gas reasons" What "fire and poison gas reasons"? The new treatments are safer than the older treatments since the arsenic has been removed. The active ingredients are borax and/or copper. If you use regular wood you are dimply setting up the problem to happen again, and in a much shorter time since new wood is probably not nearly as dense as the original wood used in the sills. Unless you want to drill a lot of rebar holes to tie into the existing foundation and transfer the load to the existing footers you need to install a new footer to take the load. Holding up a balloon framed house to replace the sills is usually done by fastening a ledger to every stud above the sill on the outside, then using jacks and angled posts to provide the temporary vertical support. It is not a job for the faint of heart, or a single person who cannot perform the work quickly. The structure is at significant risk while on the temporary supports and the replacement needs to be performed as quickly as possible. Larger section lumber is used to try and spread the load from the temporary supports, but if the ground softens for any reason you can collapse the structure.

In a traditional window the sill should be attached between the lower parts of the jambs (the jambs should support the window). The lower horizontal interior trim ("stool" and "apron") should be attached to the sill and a bit of the jambs as well as to the interior wall. If the damage is extensive I would think it would be best to remove the entire window unless the rot is only in one area of the sill and that area can be cut out and patched or reinforced without disturbing the rest of the assembly. You should consider a wood restoration system like Abatron sells but there are many others. Here is a link that might be useful: wood repair materials

How did this get water damaged? If the wall is starting to bow out, you've got a larger problem that won't be fixed with a sill replacement. There is probably structural damage that needs to be addressed after you figure out where the water is coming from and develop a plan to prevent this. This is not necessarily a minor problem or an inexpensive fix as it's likely a load-bearing wall. You need to consult with someone to figure out whether this is a problem with the siding, the window, the gutters, the roof, etc. Otherwise you're putting a bandaid on something serious that is likely going to get worse.

I finally dug into this project. As a primer, these windows (as well as the siding in this part of the house) were not properly flashed, which also resulted in rotting portions of the osb next to/underneath the windows. so what was a ”I’ll fabricate new frame portions and replace those” became ”I have to pull of a lot of the siding off around the windows as well, replace/repair the osb (I used plywood), and put on proper housewrap and gap between the siding wood and the wrap” This house was constructed right before the mass availability of superior housewrap, and the siding ”logs” were nailed directly to the tar paper wrap with no gap . Definately a learning process for me about proper construction. So to summarize, there were several sins of construction done on the walls and windows, which resulted in this problem and increased the time of this project, After addressing and repairing the rotted area of the walls and putting on housewrap and vertical furring strips to allow drainage/ breathing betweeen the siding and the wrapped wall, I removed the rotted fronts of the frames (the middle sections), stabilised the remaining good wood, constructed new frame peices, used flashing tape to seal the stabilized remaining wood, and added the frame sections in. On the worse side that i repared sections of the wall, i also added flashing to the top and bottom of the window, and made sure to have weep holes and paths for water to run outside. The side of the house that wasnt as bad (pictured above) I will address the wall/siding next year. the Frame area was the most critical, so at least i got that done before the weather gets bad here. I do plan on redoing this whole side sometime in the future, but this should give me a few years to plan that out (and save up) . I’ll add an after pic, later today if i can get home before it’s dark .