OK, all good tries. So here is the ruling.
Makes no difference that the runner was off on the pitch, as I said, it is his position At the Time Of the Pitch, which means he was on 1st base. Since with 1 out and first base occupied, the batter is out no matter what the catcher does with the ball. As long as the batter swung at the 3rd strike, he is automatically out.
As for the runner, the rule of thumb is 1 base from the mound and 2 bases from the field if a ball goes into dead area. I added that the runner was beyond 2nd base when the ball went dead, but again it is his position At the Time of the Pitch, which was 1st base. Since the catcher didn't deliberately kick the ball into the dugout, the runner is entitled to ONE base and he will be on 2nd base and now it is 2 out.