I (USC) was married in Canada in 2005. I didn't apply through DCF because a) I read that the USC had to have legal status in Canada to go that route so I moved back to the U.S., got a job, and started the IR-1 process.

I saw there is a loophole for the K visa in that you can process in the country you got married in, regardless of their immigration status within that country. Does that also apply to DCF applications?

Nope. DCF is only for married couples who live abroad -both of them, that is. Sorry