We consider a hardware-impaired multi-cell Rician faded massive multi-input multi-output (mMIMO) system with two-layer pilot decontamination precoding, also known as large-scale fading precoding (LSFP). Each BS is equipped with a flexible dynamic analog-to-digital converter (ADC)/digital-to-analog converter (DAC) architecture and the user equipments (UEs) have low-resolution ADCs. Further, both BS and UEs have hardwareimpaired radio frequency chains. The dynamic ADC/DAC architecture allows us to vary the resolution of ADC/DAC connected to each BS antenna, and suitably choose them to maximize the SE. We propose a distortion-aware minimum mean squared error (DA-MMSE) precoder and investigate its usage with two-layer LSFP and conventional single-layer precoding (SLP) for hardware-impaired mMIMO systems. We discuss the use cases of LSFP and SLP with DA-MMSE and distortion-unaware MMSE (DU-MMSE) precoders, which will provide critical insights to the system designer regarding their usage in practical systems.