You're right. IF you have those 3 requirements met. Descending below the MDA and leveling off at TPA and then continuing the circle does not meet the first condition. It means when you can make a normal descent to land i.e. the base turn, final turn, it depends on your altitude and aircraft. But if you are nowhere near your final descent to landing then you are supposed to maintain MDA. The original question was about the LEGALITY and not the common sense thing to do. Obviously if you are familiar and you are VMC and you can see the obstacles then it would be safe to descend to TPA. Also realize that this is an abnormal situation. The normal HAA for circling approaches is 450' and the normal civilian TPA is 1000'. Of course there are exceptions to every rule though. If the circling MDA is above TPA it is because there is an obstacle within the final approach corridor or the circling radius. There is no secondary area for circling approaches, so the obstacle is within the area, not close to it. By studying the varying MDAs, knowing the various circling radii, and the HAAs you can sometimes determine the height of the obstacle and how far from the field it is. I have taught many a student that this is the most dangerous type of approach we do for a reason.
We all know that tower/approach will not use the words "clear to proceed VFR" because VFR is not a clearance. But legally you have to cancel IFR in order to deviate from your approach clearance. Descending below MDA before in a position to make a normal descent to landing is a deviation from that clearance. Remember a circlilng approach just like a visual approach is an IFR maneuver.
For the post that referenced the density altitude. Approach categories are based on IAS. But you can always use a higher category. So it is very prudent to be aware of your TAS and use the higher MDA if your TAS goes into the next category.