It is great, actually, instantly gives you cool points from the literary majority. I think a lot about this myself, and, for example, if you look at the books that don't even retell anything particular but just borrow structures and motifs from the culturally significant books like Divine Comedy, Decameron, Canterbury Tales, Paradise Lost without commiting to the lore or doing any profound research, you will probably still note the good reception these books garnered. I would think the whole dome of postmodernism is somewhat reliant on retelling and reflecting on the ideas that came before us, no? So it is always a very fertile ground from the fiction standpoint, no matter what you take as the basis for retelling. Poetry, especially that of the Romantics, is long overdue for retellings, and is, in itself, the movement of taking old and redoing it for the modern audience of the 18-19th centuries! So if you do those, you would be retelling a retelling which is recursive and kinda exciting =).
And I have no idea what you mean by "cultural appropriation" in this context. Um, are you talking about stories that are not your own (as in your culture/ethnicity) and that you want to write about them without doing research and trying to be respectful to the original? I really see no problem here if you do this mindfully and with respect. As usual, any ethnic minority doesn't forbid anyone to retell their stories - they just want people to not fall back to cliches, and to actually research stuff before they write. And, if you won't go "Pocahontas" with it (i.e. completely undermine the story of what really happened in order to paint some character in better light, and disregard advice from the knowing people), then you will be fine. Also, don't go the "exoticizing route" of the customs and food and lore, and no one would think you are appropriating anything.
To answer your question about "where is the line?" I would say that... it might be somewhere but no one can tell where it is unless we choose it ourselves, I guess? No one can stop anyone from retelling/reviving anything, but the swamp of postmodern reimagining might lead to the fact that there will be less content to have the iconic status, in the possible future. Already, when someone tells me they are reimagining Paradise Lost (like the certain popular movie of this year's, Alien: Covenant) I want to roll my eyes. Or every time I hear something like Maleficent/Wicked/any other classic story where the villain is reimagined to be the actual hero. Or anything about King Arthur in contemporary cinema - everyone is just so tired/uninterested in seeing any retellings of those. Some motifs and ideas get so popular they no longer can be viewed without the lens of postmodernism and become mockeries of themselves, and are, therefore, already copies without the true original left to copy anymore. That kinda sucks, and leaves our pool of "cool things to reimagine later" that much shallower.
Yet I understand you are doing something obscure and no longer in print? Depending on what it is, it might even work in your favor due to the Unesco's and other funds that try to preserve and celebrate forgotten stories/cultures/languages support in any interest of the modern audiences towards the endangered lore. Some cultures are barely alive right now and are in desperate need of someone taking note of their stories before they (along with the endangered languages that carry them) vanish completely from the world. So preserving their narratives in any form might really be considered humanitarian-level work, and very fulfilling.
In a nutshell, of course retelling of stories needs caution, but so does everything =). Hope anything of this helps you with the decision.
