I totally understand this explanation and design decision and know this is a massive task with multiple goals.
However, I do still wonder how you are planning to address the issue of block references and transclusion. I think this is the major advantage of every paragraph/heading/bullet/image/etc. is a block approach that roam/innos/other tools use, where you are able to arbitrarily and any point in the future reference a deeply nested set of text or lists without having to first break it up:
I also don’t understand how the proposed breaking up would actually work and what the ramifications are. For example, how do you break out a subset of items in the third layer of a bulleted list without all the bullets getting indented back. It also seems like a lot of effort to just be able to reference those few bullets in another piece of text. From a UI perspective, I am afraid that this would also be quite ugly as there would be texts and lists broken up in all sorts of ways. I am also afraid of what this break-up process does to existing links.
I believe transclusion and block references should be one of the important outcome of this massive effort around blocks. Even if you can’t do it right now, I think it is important to have the foundation to achieve it in the future.