Hello,
yup, situation looks ugly.... however to answer your queries... (I presume when u say that you have booted through mirror.... you mean booted through slices of mirror disk)
a) I don't see any downside of keeping mirror running
b) As you say that rootdisk has got a online:failing flag, failing flag usually indicates a temporary write failure, if you check in "iostat -En" output, do you see many hard errors on the actual root disk ? it is quite possible that disk isn't fully gone bad & has few bad sectors... you an use "format" utility of solaris to "analyze" your root disk & mark off bad sectors
c) Once you are done with step b, if you find too many bad sectors or too many io errors, then you don't have a choice to mirror, then you have to survive on one disk only.... now it doesn't really matter if u keep it encapsulated or unencapsulated, main purpose of encapsulation comes with mirroring, as you don't have mirroring.. no use of encapsulation...
to conclude, only hope looks to be how much ur rootdisk has gone bad, if it is good to survive we can think to mirror again....
Gaurav