#1 wasn't directed at KRS-One. But KRS-One want to use it as fuel to create a rap beef.
I think #1 was a subliminal at KRS and others, basically anyone who the shoe fit.timeline sounds accurate enough, but how did Nelly start it? #1's a generic ass song about haters. The real hip-hop/flop line is also generic. Could be said about anyone who was hating on Nelly.
KRS interrepting it as a diss is all on him.
But let’s say it wasn’t and KRS drops his response, which he then goes on to say wasn’t about Nelly and that he didn’t think #1 was about him. At that point, Nelly makes the decision to diss him in spite of KRS saying the song wasn’t about him.