Feature team - long lived or dynamically changing?

Shouldn't the decision be up to the team and a matter of self-organization? Perhaps a Scrum Master should help to promote this culture, along with the ability to make informed choices.

Depending on the number of people involved, I'm not convinced that your pros for long-lived teams are actually pros for long-lived teams. I've seen some of these behaviors where people will cross team boundaries to develop connections, share knowledge, and build other skills even if the teams tend to be more stable and longer-lived. I believe it's more of a function of organizational size, support for internal networking, and culture rather than long-lived versus dynamic teams.

Although I've never had the experience of working with an organization willing to take the risk on highly dynamic teams, there's plenty of information out there. Heidi Helfand's Dynamic Reteaming: The Art & Wisdom of Changing Teams, Open Space Technology and open allocation, and FAST Agile may give some starting points. Willem-Jan Ageling has written about combining FAST with Scrum (here and here).

I'm not sure what concerns you have with the Scrum Master role in a dynamic team environment. There's probably some good lessons from scaling frameworks. Consider that in frameworks like Nexus and LeSS, the Scrum Master tends to be a product-level (or, at least a cross-team) role and frequently crosses team boundaries. The only difference would be that the team composition is changing frequently rather than stable teams often found in more traditional organizations. Perhaps you can elaborate on specific concerns in a dynamic team environment.

In dynamic team setup I am not sure how scrum master can fulfill his role when team composition is in constant change

I don't believe a Scrum Master ever fulfills their role.  Even with a long-lived team, there will always be challenges for the Scrum Master.  Remember that the Scrum Master also has responsibilities to the organization as a whole.  

A dynamic team environment would provide more challenges to a Scrum Master but every Scrum Master I have known has, at one point or another, indicated that they would like some new challenges.  

I don't agree with your pros for the dynamic teams.  First, I don't like the statement of being "forced".  In an agile world of self-management, self-organizing the word forced doesn't fit well.  Second, I have yet to see an organization that has agility self-organize into isolated silos of knowledge.  These organizations tend to understand the benefit of transparency and teams will radiate information, whether it be about their product or the technology that they are using.  

I think you should take some time to create a list of some cons for both options.  You should never make a decision based entirely on the pros because as the saying goes, the cons can outweigh the pros. 

I am going to second @Thomas Owens' recommendation of Heidi Helfand's book. It has some great information even if you aren't in a dynamic team setting.  I will fully disclose that I worked with Heidi for a number of years but I did not read her book until well after we started working together.  She is a very smart person and this book is only a portion of her knowledge around team formation and agile practices.  In your situation, the book will provide you some knowledge and insights that you could use in your decision. 

In dynamic team setup I am not sure how scrum master can fulfil his role when team composition is in constant change

Any newly formed team would go through storming phase. A Scrum master could enable an environment where the team can pass through this phase quickly without/less impact on team culture and work quality.