Go factory.

Thanks, @toddinmn. I am sorry, do you mean that I should use the frame expander?

Yes, and i would do it on all windows even 2nd story. It will look cleaner in both color and profile, and It should shed water better since it will sit flush with the frame. They really should come standard on any insert application.

Thanks, @toddinmn. In your view, would you also use the expander in the side jambs and top, in addition to the sill? I was not planning to do so. This will be an exterior pocket installation, so the old exterior stops will be removed. I was planning to cover the side and top grooves with moulding to reconstruct the side and top exterior stops.

Thanks, @Windows on Washington Ltd. I will use the expander. But I plan to use it only for the sill, not for the side and top grooves/gaps. This will be an exterior installation, and I will need to remove the side and top exterior stops. I will then re-construct those stops with PVC trim. Those new stops would cover the gaps in side and top. Do you find this plan reasonable?

That would be reasonable but they may not fit the best as it may be difficult to get a straight cut, might want to reuse the piece you cut out. You might not have to cut out the top piece.