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Probably too late now, but my suggestion would be a hand impact tool, like
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It seems like the stout hammer blow directed inward seems to help loosen the screw, as well as help keep the bit from camming out.
If the slot is too badly damaged, you can try cutting a new one with the Dremel and an abrasive cut-off blade. If that doesn't work, cut a few more slots and collapse the head until you can get the ring off, then cut a new slot deeper and try again with the impact tool.
Yes, good tool. However, the one I got from Craftsman (Sears) recently had a very brittle flat bit which broke on the first whack. No warranty on the bits, I'm told. Hard to find on wide enough with the correct hex size too. If you can get some good bits, the end will go right on your 1/2 " air impact and this works really well for me.
Tom