Top posting vs replying inline feels like an incomplete dichotomy. I often encounter threads on mailing lists where people are replying inline but not trimming the part they're not replying to. That makes it hard to follow. Or they reply inline and trim well but it's still hard to follow because you need more context than just the part they're replying to.

So the key is "the thread needs to be distilled" as OP puts it. And often that's more work than just finding the right sentence to quote.

My approach these days in my email is:

99% of the time I quote nothing and delete everything my client puts into the compose window, relying on the default thread-view in most email clients to supply the context for my readers.

1% of the time I need to quote, and I quote liberally, treating words as a wiki, and editing/sculpting the text in '> ' just as much as my own reply below it.