The SCORM 2004 4th Edition pseudocode handles the case for a choice request (SB.2.9, steps 12 onward) like so:
If the target activity is a leaf activity Then
Exit Choice Sequencing Request Process (Delivery Request: the target activity; Exception: n/a)
End If
Apply the Flow Subprocess to the target activity in the Forward direction with consider children equal to True
// The identified activity is a cluster. Enter the cluster and attempt to find a descendent leaf to deliver.
If the Flow Subprocess returns False Then
// Nothing to deliver, but we succeeded in reaching the target activity - move the current activity.
Apply the Terminate Descendent Attempts Process to the common ancestor
Apply the End Attempt Process to the common ancestor
Set the Current Activity to the target activity
Exit Choice Sequencing Request Process (Delivery Request: n/a; Exception: SB.2.9-9)
// Nothing to deliver.
Else
Exit Choice Sequencing Request Process (Delivery Request: for the activity identified by the Flow Subprocess; Exception: n/a)
End If
It looks like this means that if the target activity resolves to a cluster activity but the Flow Subprocess can not find any available descendent leaf activity, the Current Activity is still modified and the sequencing request "succeeds" despite returning an exception.
What is the expected behavior for the LMS in this scenario? A cluster activity can't be delivered but this terminates the previous activity. Should the LMS simply deliver a blank page instead of an activity and hope the learner will be available to navigate away to another activity using the navigation controls?
The definition of the Overall Sequencing Process helpfully doesn't specify how an exception is supposed to be handled, but considering that this behavior sets the Current Activity and all successive requests will reference that one instead of the previously active activity, clearly something needs to happen or the LMS will be stuck in an inconsistent state.
Your reading of the pseudocode is correct. Choice is a bit special compared to the other flow events, but the steps of termination and showing the user a "please select an activity from the activity tree" screen could happen in several cases. The only somewhat unique part is the setting of the current activity, which makes it so other flow navigation events the user may select start from their last intentional choice, and not from whatever was previously loaded. It's not unusual for the Current Activity to be on a cluster, as stated on SN-4-18: "During termination behavior, Sequencing Exit Action rules are evaluated on all of the ancestors of the current activity – this is done in the Sequencing Exit Action Rule Subprocess. The result of this subprocess will be that either the “just terminated” leaf activity remains the Current Activity, or an ancestor of the leaf activity becomes the Current Activity".
You're also correct that OP.1 ("Overall Sequencing Process") is mute on the topic, going so far as to say "Behavior not specified." for a Not Valid sequencing request. I believe the most common choice is the aforementioned "please select an activity from the activity tree" style screen in place of where the visible SCO would have been.
The spec tries very hard to separate LMS display choices from how sequencing itself operates. SN-5-3 states: "SCORM imposes no requirements on the type or style of the user interface presented to a learner at run-time, including any user interface devices for navigation. The nature of the user interface and the mechanisms for capturing interactions between the learner and the LMS are intentionally unspecified. Issues such as look and feel, presentation style and placement of user interface devices or controls are outside the scope of SCORM."
But the specification otherwise says some instructive things. Page SN-3-6 states that "As depicted in Figure 3.2.1c, the target of the Choice navigation request (Activity B) has a Sequencing Control Flow defined to be False. In this case, no activity can be identified for delivery (clusters cannot be delivered). Because Activity B has Sequencing Control Choice defined to be True, an LMS shall provide some mechanism for the learner to select (trigger a navigation request for) one of Activity B’s children directly, but not Activity B."
While this doesn't explicitly state that there should be instructive text displayed to the learner in that SCO area or that the choice shouldn't be allowed, it does state that something should be done that should guide the learner into intentionally performing another step to launch something else. Again, this isn't exactly the same use case, but it's probably the closest it gets relative to choice.