"think that if the GOP can improve upon Lazio's performance by two or three points-which should be relatively easy"
Yeah, but doing 2%-3% better than Lazio (which you are correct to point out would be easy to do, since it won't be a presidential election year so Hillary won't benefit from Gore coattails) still means that Hillary wins comfortably. We need to get close to 50% to beat her. Maybe Rudy for Governor and Pataki for Senator could do that, but I'd rather have Rudy run against Hillary.
Peter King is a media whore, but that doesn't mean that he is popular. When he was considering running against Schumer earlier this year, a lot of Republicans were hoping that he would in order to get him out of Congress and out of the public eye.
And King's past support for the IRA will not help him get the "security mom" vote. If you don't think that Hillary will exploit that issue, you don't know Hillary. She'll run to King's right on the War on Terror and the media won't call her on it.
I would rather see Rudy run for governor because there's a chance that Pataki (the only other electable Republican) could lose if he runs for a fourth term against a formidable opponent like Schumer. It's more important for the state to have a Republican governor than a Republican senator and Giuliani would win handily while Pataki would have a better chance of beating Hillary than Schumer.