I don't have any idea what type of bow can be produced from the incense Cedar. The knot shown to me doesn't seem to be of huge concern. I think the original pictures made it look far more dramatic than it actually seems to be. I personally would carry on. You've got a considerable amount of effort put into this stave already. I agree with Del. Usually when I see that black ring around the knot it's a lose one. I usually just pop em out. I follow the side grain around them leaving the bow wider where the knot is. As Jawge says like water flowing around a stone in a creek. For this I like to mark grain with a pencil and then use my draw knife to follow side grain around knot. Some wood this works great and some not so much. I remove the belly wood over the knot like you did with rasp. Draw knife tends to tear out chunks. Then I use scraper to smooth belly up a bit. I find if I get good dependable grain that "flows" around the knot, I can make the entire area bend nearly as much as the rest of the limb.
I might be a bit crazy, but I like a challenge. I've been told many times in my life that I was wasting my time. I would have never started knapping, making arrows or building bows if I'd have taken it to heart. Even after I figured out how to do all that and improved my equipment and shooting ability I was still constantly told "Your wasting your time, Your never going to shoot a deer with that". Sometimes I don't listen so good. Sometimes I find out their right. All the cases above they were wrong.
I love ya Pearl. No offense here buddy. I think I understand what your saying and I'm questioning the wood type to, but I'm going to respectfully disagree and tell you sir to carry on. It's very possible that your efforts prove unsatisfactory. I don't think them a waste of time though if you learn something from them. Even if what you learn is that it was a waste of time.lol.
Bjrogg
Not sure if I picked the right picture but tried to give example of grain "flowing" around knot
