I haven't seen anyone mention that the ruling here could force additional cards to be discarded after reaching the hand size.
Example:
I have bought Sewers and have five cards in hand, including Tunnel and Watchtower.
Opponent plays Militia.
I discard Tunnel.
I reveal Watchtower to trash the gained Gold.
I use Sewers to trash a card from my hand.
I now have three cards left in my hand.
If I discard until I have 3 cards left then I'm done, but if the number of cards to discard is decided when Militia is played I must still discard one more and will end up with just two cards left.
You're creating an odd scenario where you discard 1-at-a-time, to a set number determined at the start. I believe the two options are:
Discard 1 at a time until 3 cards or less in hand. (can react after each discard)
Discard all at once down to 3 cards or less in hand. (only react after all are discarded)
Now option 2 combined with Sewers and Tunnel and Watchtower can result in a 2-card hand, because you react after the discard, and choose to trash 1 of your remaining cards. But it's not because you have a discard leftover after reaching 3 cards. Option 1 you would discard 1-at-a-time and end after trashing.
I think though that for the discard-gain gold, trash something from hand, draw a card (Catacombs+Blessed Village, or just Overgrown Estate or Rats). This actually gets you to 3 cards and 2 discarded + 1 trashed either way. The only difference is whether you can discard the drawn card/watchtower or not.
Option 1 goes: discard-trash-draw, at 4 cards, discard again. Option 2 goes: discard 2 (at 3)-trash-draw, at 3 cards now. You'd need to be able to trash due to discard from outside your hand to cause the issue that Village Green causes.
So, option 1 you can discard the drawn card or Watchtower, whereas option 2 you must discard an original non-Watchtower card.
EDIT: it's also possible that option 1 terminates the discard while you're mid-reaction since you reached 3 cards at some point.