Barry, please see my message of 2nd January above where this is explained.
The flash chip must forever be left by software in whichever addressing mode the MT7688 is strapped to expect at boot - anything else is simply unacceptable and unsafe, as it means that an unexpected reset with the flash chip in the wrong mode will result in a hang, rather than a boot and recovery to doing useful work.
If you want to use a 256 megabit chip with stateful addressing, you will need to change the MT7688 strapping to default to 4-byte mode and pick or configure the flash to as well. Otherwise you're limited to booting in 3-byte mode and either making due with 128 megabits or else using flashchips with stateless addressing, ie having distinct read commands for 3 and 4 byte addressing modes.
On the current injection issue, no, a 1K resistor is not enough to overcome it, and it can't be on the RX pin. You need a series resistor on the external RX circuit to limit the current, then a smaller resistor across from the power rail to ground to form a divider which keeps the rail from rising up when unpowered, and then ideally something like your own better external diode to shunt the current from the receive pin to the rail without doing though the delicate on-chip protection diode. Or build a serial cable that has a target voltage detect to enable its driver, kind of like some in-circuit programmers do.