And create intangibility which would make us IMMUNE to taking damage? No way! That's against the rules!

No, set KO's game mode to Spectator so he can't continue destroying MC.

That could work, but what if he creates another world and keeps on doing it every time? Rebel isn't exactly omnipresent or omniscient. Nor does he have the ability to sense King Orange doing something wrong from "miles" off while Rebel takes a break. Also, what if he just bypasses spectator mode?

Do we assume King Orange has the command block staff, the single MGI (Minecraft Game Icon), the fused MGI, one MGI without the staff, or both MGIs without the staff?

He has the fused MGI staff.

The idea is to trap him in that world in Spectataor Mode. Remember, stick figures don't enter MC via a loading screen, they are physically present within the game and require a physical exit in order to leave, which KO could not create in Spectator mode.

But doesn't he have a weapon that could help him manipulate that cause? Something that helps him do everything Minecraftly possible?

He couldn't use it if he's incorporeal.

How would we know? What if he could.

Then that would be an even more interesting plot! :D