(1)  The patch is just to docs, not code, so I'm not entirely sure that I understood it properly.

(2)  The new semantics are a huge mess to explain.  This might be because the old semantics were bad, but the result is the same.  I think it would be better to create a different API object.  (If I read correctly, you would leave function connect unchanged but also def dbapi_connect.)  Then keep this new one as simple as it should be -- which will probably mean leaving out some of the parameters that you deprecate.

(3)  The existing module documentation does claim to be DB-API 2.0 compliant; you should be explicit in the documentation (including docstring) about which behavior differences affect each of (database correctness/API standards conformance/ease of use).