Locale-Conditioned Few-Shot Prompting Mitigates Demonstration Regurgitation in On-Device PII Substitution with Small Language Models

Personally Identifiable Information (PII) redaction usually replaces detected entities with placeholder tokens such as [PERSON], destroying the downstream utility of the redacted text for retrieval and Named Entity Recognition (NER) training. We propose a fully on-device pipeline that substitutes PII with consistent, type-preserving fake values: a 1.5 B mixture-of-experts token classifier (openai/privacy-filter) detects spans, a 1-bit Bonsai-1.7B Small Language Model (SLM) proposes contextual surrogates for names, addresses, and dates, and a rule-based generator (faker) handles patterned fields. We report a prompting finding more important than the quantization choice: with naive fixed three-shot demonstrations, the 1-bit SLM regurgitates demonstration outputs verbatim regardless of input; 1.58-bit Ternary-Bonsai-1.7B reproduces byte-identical failures, ruling out quantization as the cause. We fix this with locale-conditioned rotating few-shot demonstrations: a character-range heuristic picks a locale-pure pool and a per-input MD5 hash samples three demonstrations. With the fix, 482/482 unique Bonsai-1.7B calls succeed (no echoes) and produce locale-correct surrogates, although the SLM still copies from a small same-locale demonstration pool - a residual narrowness we quantify. On a 2000-document multilingual corpus, hybrid perplexity (PPL) beats faker in all six locales under a multilingual evaluator (XGLM-564M); length preservation is best-of-three in 4 of 6 locales. On downstream NER (400 train / 100 test, English), redact yields F1=0.000, faker 0.656, original 0.960; on a matched 160/40 subset including hybrid, faker (0.506) outperforms hybrid (0.346) at p < 0.001. We report this as an honest negative finding: SLM surrogates produce more natural text but a less varied training distribution, and downstream NER benefits more from variety than from naturalness.