That's interesting and all but-- I admit I haven't read the source-- I was under the impression that the actual text was fairly clear about Atlantis being a fictional political allegory.
In the ancient world, there was little distinction between the concepts of fiction and non-fiction with regard to story-telling, given that they viewed their own existence as part of a larger (what we might call fantasy) narrative about the universe itself. For them, a story was fiction (not true to life) if it taught lessons and ideas that were not true. A story was non-fiction (true to life) if it taught lessons and ideas that were true. So a simple story like "a citizen robbed a merchant and was rewarded by the town for his good deed" may or may not be factual (by our standards), but to them would be a fiction. On the other hand, the story of Icarus would be regarded as non-fiction, not because it actually happened in the sense that we understand historical events, but because it taught a moral truth. Whatever did or did not happen in the mundane world of day-to-day life wasn't as important as the lens through which that world was interpreted.
With that in mind, they would not have placed a high priority on clearly stating what was totally real and what was totally unreal. Atlantis could have been a real city in accordance with the theory described by OP, but Plato might have adopted that truth for the purpose of crafting a political allegory that would be, in his eyes, even MORE true than some mundane fact like "Atlantis actually exists." So don't be too quick to dismiss it as false just because Plato meant it as a political allegory. The ancient Greeks didn't care as much about the distinctions we cling to in the modern world.
Without offering an opinion on the Azores theory, I'd like to note that the two aren't mutually exclusive. Plato could have heard the Atlantis myth and then repurposed it as a political allegory.
