I've never done what you're proposing to do. But I've brewed plenty of watery beers during my extract years (mainly due to oversparging or the mistaken belief that 'If I add more water, I get more beer."--which is true, but at the expense of the beer's flavor/body/balance/etc.)
Will you be fermenting in the keg? How do you plan to deal with the trub/yeast and the excess CO2? Do you even have enough headspace to add a couple pints or quarts of beer to the keg?
Steeping grains--since you say your beer is thin/watery, if you go this route, you ought to keep the total amt of steeping water to a minimum (keeps pH from rising, and keeps the wort thick, i.e., high OG). Adding dextrin malt help enhance the body of your beer, too (and you'd be able to use less water than the steeping grains approach).
I would go no higher than 170 F with your sparge water temps to avoid tannin extraction (controversial--some say pH is more of an issue--brought on by using too much hot sparge water).