I agree that the photos show lag bolts, which surprises me. I had talked myself into thinking that they were machine bolts threading into T-nuts, as Shane suggested in post #4 above. However, given that they are lag bolts (lag screws), your next-larger-size approach is a good first step. Of course if there is too much rot, the larger lag screws won't hold either, and at that point there is probably no fix other than the one you outlined - open the wall, insert a steel plate, and insert new machine bolts, threading them into washers and nuts above the plate. If the rot hasn't extended too far forward and aft of the repair area, this should work.
Bill
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Threaded Mode
