Placement is optional but consistency isn’t. Once you decide where it goes, you should make sure it shows up in the same place both visually and in the focus order. Don’t make screen reader users have to look for it. Also keeping the OK and Cancel buttons (if that dialog has them) in the same order (i.e. one visually on the left, the other always on…
Though your input on the insetting is seemed the better option compared to what material design suggested, Yet I just feel that we as designers with some extra good field research on readability behavior/pattern of our brain, can come up with something more intuitive other than just item dividers.
Anyway, A good read, I enjoyed it Linzi Berry
Good stuff lady! Mini pro-tip: if you don’t have an icon handy and don’t want to use an [x] glyph, use the multiplication sign glyph: [×]
There’s also a bunch of other handy styles in the Unicode spec: https://en.wikipedia.org/wiki/Multiplication_sign