Yes , I am not convinced either, its just the words "squaring circuit" caused me to dredge up that thing about trig identities,I can't visualize how with an upper side band of 1.001 MHZ, you can regenerate 1 or 2 MHZ, thats why My thoughts wandered off to the two oscillator solution. Intuitively, I can visualize, the difference between two side bands one with a + frequency error, the other with a - frequency error. Its just the practicality of figuring out how to unscramble the frequency error among all the modulation. My thoughts are leaning towards, limiting the two demodulated signals.and putting them into a double balanced mixer with a low pass filter at its output. The only time you will get zero output is when the +- frequency errors are zero. I can see that it could work, but whether it's practical is another thing!
Frank