I need a category item view where in the leading group it displays one of the latest K2 items that is featured. And then below that in the Primary group I would display the rest of the latest items that are not featured. And when you paginate you only see the primary group.

I am doing this because I want to use category_item as the homepage. The leading item will be my "hero" image that is big and will be using srcset to selectively display the correct image size based on viewport. I want the Leading item to promotionally "linger" in the top spot while the K2 items in the Primary group update based on create date.

I would normally use the Roksprocket slider module pulling from K2 to display the Hero slide BUT I have not found a way to use srcset with the K2 images.

I also, can't do this with K2 mod_content because the module only pulls the image default set in the module and won't allow srcset as is.

If I can't customize the category_item layout this way, is there another K2 friendly content or slideshow that will allow srcset to control image display.

On the contrary Jack :)
You can use srcset on the module's template.
The syntax is a bit different. The image should be called like this:

$item->imageXLarge
$item->imageLarge
$item->imageMedium

and so on.