The White Stag, Kate Seredy's 1938 winner, seems to me to fall firmly into the second camp. The book is a retelling of the legend of the Huns, as they sweep inexorably across Asia and eastern Europe, on their way toward claiming their Promised Land of Hungary. They wait expectantly for the arrival of their own Joshua figure, Attila, and experience both the rewards and the wrath of their deity, Hadur (generally speaking -- the theology of the book is honestly kind of confused). All of this requires them to battle and destroy any number of other people, whose crime is essentially Being In The Way. Seredy clucks her tongue in the direction of the Huns for this, but with a level of indignation more suited to disputing a parking ticket -- she generally seems to regard the whole affair as just One of Those Things.
Maybe I'm wrong -- maybe there's a way to retell a myth like this so that modern children could find a path into the story. There are, of course, still volumes that retell Greek and Roman mythology for children, and those stories are also remote and violent. I think it would require a totally different approach than the one The White Stag takes, however -- one that doesn't frame the events as an adventure story designed "to pay homage to a race of brave men, men whose faith in their own destiny had led them to a land they still call their own."Honestly, it's not that great of an adventure story either -- the characters are completely flat, the setting is underutilized, and the overall plot arc doesn't have the slightest hint of suspense. Seredy does have a feel for the heightened language of myth, and the sentence-level prose is easily the best thing about the book. That language is doubly impressive when one realizes that Seredy, a native of Hungary, didn't even speak English until she was an adult -- and thought of herself more as an illustrator than an author (she would win a Caldecott Honor in 1945 for her illustrations for The Christmas Anna Angel). If I had to guess, I'd bet that it was the sparkling wordsmithing that attracted the attention of the Newbery Committee.