We are still at the inittiation step when the opponent must choose A or B.
Checking play restrictions is as much a part of initiation as choosing targets, so you are still in the initiation step for Sorrowful Man and Shield Islands Dromon, too, when deciding which of the two potential results will resolve for those.
An order is imposed on every initiation. There is a specific one in the FAQ, describing how gold penalties are modified before costs as a whole are modified, etc. Part of that order (though not stated word-for-word in the FAQ) is that when choices are made in a particular order, that order can limit subsequent choices.
For example, the plot Drunken Allegations says "When revealed,choose an opponent. Then, you and that opponent must each choose and kneel a standing character." We'll ignore the fact that the opponent must be chosen before you even get to targeting characters as not applicable here because Penny does not have a "then" in her effect. However, we know from rulings (in the FAQ) that when you get to the part about the two players each choose a standing character, the person who revealed the plot chooses first. What's important, though, is that that player's choice will limit the next player's choice. That is, the other player may not choose the same character that the player who revealed the plot chose, even though the effect is still initiating and that character is not kneeling yet. This is because a character cannot be chosen as a target twice for the same effect. If all these choices were happening "at the same time" just because we are "still in the initiation step," both character should be able to choose the same character.
So, there is an order imposed when a single initiating effect imposes multiple choices, with the first choice potentially limiting the second choice. That means, in Penny's case, that the first choice ("A or B") locks in which resolution will happen. It should be plain that the first choice is separate from the second because unless the play does choose B, the choice of card never even happens.
There is no restriction on the first choice ("A or B"), so the restriction on the possible second choice does not limit your options at that point. Look at it this way: Let's say I have a card that says "Choose an opponent. That opponent chooses and kneels a standing character he controls." Why can't I choose an opponent with no characters in play? The "choose an opponent" part does not limit my choice of opponents to ones who have standing characters - only the opponent, once chosen, is limited by those restrictions.
It's the same thing with Penny. Since there is an order to the choosing, imposed by the way effect initiation has always worked, and the two choices are separate, limits on the potential second choice (which cards can or cannot be discarded) are not anticipated to therefore be limits on the first choice (which of two possible effects will be resolved).