If someone was honorably discharged for medical issues and now has 100% disability, should they pursue a medical retirement?

Is it “possible” to have a discharge 'upgraded' to a medical retirement? Yes, but....

First, your buddy would have to appeal to the Air Force Review Boards Agency (AFRBA) to have them change the discharge to a medical retirement. There are a lot of items that are going to impact on this, but the two main ones are:
● Disability ratings from the military are different from disability ratings from the VA. The military looks at your buddy and evaluates the injuries looking at the impact on his ability to perform the functions of his AFSC and those expected of being an Airman. The VA looks holistically at everything and how it will have a lasting impact on him in the future as a civilian. It is very possible to have a 100% rating from the VA and nothing from the military.
● He'll have to show that 20 years ago the Air Force committed an error in not putting him though a medical board and evaluating him at a disability rating above 30% (which would medically retire him instead of giving him a medical severance). The mountain to climb in proving this will be pretty impossible considering the time frame and the difficulty medically proving his situation was as bad back then.

Second, unless those injuries were combat-related or ‘combat-training’ related, then the VA must recoup the severance from the VA disability by offsetting the disability retirement by the amount of the VA disability retirement. This means he doesn’t have a “huge medical retirement backpay” that he will be eligible for and instead it would be the difference between what he paid in taxes on the amount and what the (now) non-taxable portion would be from the VA (add to that he would have to file amended tax returns to get that difference … and the IRS only allows you to go back three years from the date you file it).

This is completely aside from your buddy having other conditions that go into that 100% rating as even the highest rating for plantar fasciitis (given for the loss of use of a foot) is 40% and for bone spurs it is 10% (and ‘pyramiding’ would likely come into the consideration).

Finally, keep in mind that VA ratings can, and do, increase if applicable. It is more than likely that the conditions that led to a 100% rating from the VA were not present back when he was discharged, but appeared over time and were deemed to have been caused either directly or proximately by military service.

A 100% VA disability rating does not automatically reflect or trigger a medical discharge. That is decided by big Air Force, Army etc. at time of discharge. And since it’s been 20 years I agree with MSG (Join to see) that the horse has already left the barn.

It could have been a discharge chapter that designated it being in the best interest of the Air Force and the Airman in question without needing a medical discharge. I'd have to look up the difference, but that can be one explanation for it. As for requesting medical retirement, that horse is long gone from the barn. As in, I doubt anyone would even look at this and entertain the notion of processing everything as a medical retirement. Again, if the medical conditions did not warrant (per the medical providers) a medical discharge, then there isn't much of a leg to stand on.

The one thing I think of, is that if the medical provider did not feel the condition warranted a P3 in the L of the PULHES, that is why a medical discharge did not occur. P2 perm profiles will not trigger a Board, but a 3 or 4 will. However, if the Airman in question was never given a perm profile, then this topic is moot.

With the VA granting 100% time now, it's (IMHO) best to let this dog lay as it is.