You can! This would re-encrypt your locally decrypted wallet seed using the new credential and store it under the newly generated lookup key

If old pw is considered leaked, new seed must be generated as well. Leaked password is the main reason why users would change passwords.

True - was answering the general case of password change, eg. some folks like to rotate passwords every so often in the absence of a known leak or breach.

In the case of a compromised password the entire wallet should be abandoned.