They're paying a spell level for each, I'd just let it completely replace the fire damage. *shrug*
As for the flame strike example, I'd say that's already part of the spell, and thus wouldn't apply. It'd be redundant, like using quicken spell on a spell that's already a swift action to cast.
I was leaning towards that interpretation until green slime below corrected my interpretation of vile damage. The bad part of vile damage is that it can't be healed unless you're in an area that has been subjected to a Consecrate or Hallow spell, which are normally hard to come by within the lairs of liches.