Andrew, this is where it gets tricky, as there is a wide variety of opinions out there, each one may be legitimate in its context. I can give you my, very humble opinion, based on what has helped me to improve so far, although I am still not free of symptoms.
Without challenging your pain, you will never get better - that is a given and uncontested across the board.
I am not sure what kind of physical therapy did Dr. Sarno mean, I know that my PT encouraged me to challenge my pain and other symptoms (very intense muscle spasms), although she was too conservative and did not encourage me strongly enough. The set of exercises she gave me was doing exactly what Sarno prescribed: challenging my pain. I am still not sure I can reconcile his advice to stop my PT with the rest of his recommendations. On the other hand, what was clearly absent in the PT I was receiving, is the emotional component, which is another key to solving the problem. My PT told me that I in fact had some structural problems and that I should stop talking about repressed emotions otherwise people would think I am nuts. This is how they are trained - no surprise here. Maybe this is what Sarno had in mind when telling us to stop PT.
The next question is to when start engaging physical activities. My answer is: try and see whether it works. If it does not - give yourself a break and then try again. That was a way for me to understand when I had enough confidence. I tried at least dozen times in the past six months and most of the times I had to readjust my expectations to the less ambitious ones. But I was still trying. Some people succeed by going cold turkey. Some like me - in baby steps. Give it a try many times until it works for you.
Good luck!