The following is my opinion, if you disagree, please be respectful.
I agree with nearly all of your post, but I'm not sure I agree that the proposed alternative would retain players in a commercial version of the game. Unless, it came thick and fast, which I believe AE allows us to do.
I think allowing people to switch teams is a shame because it means nearly everybody ends up on blue, to be with other players - it's a self-fulfilling prophecy. An inescapable spiral. It's somewhat disappointing, I have to say, especially when you can do so with minimal effort. I understand convenience is a wonderful thing, but the story of your character is marred by Null-the-Gull - when you should be doing dastardly things in order to become a villain. It should BE a story not a light switch. And I get it, I don't HAVE to use the seagull, but when it's THERE... it's just there - all you do it press a thing. It's too tempting, especially if the other method feels like a chore.
Regarding Incarnates
I think the NCSoft watched WoW with envious eyes and drooling jowls. I'm not going to say they were told what to do, but the Paragon devs tried to implement open world Raid-Like content. I can't say it's a bad idea - it's the meat and drink of Guild Wars 2 even today, but I don't get a kick out of it at all. Pressing 1111 whilst watching some feet/tentacles - it's a bit on the lame side, even when it's Lusca. Sorry Lusca.
... and you can see what the players would have said if the story kept going along the lines of "help <Legendary NPC> do a thing". It would be nonsense along the lines of "this story isn't about me". Because when you're top-tier you expect to be their equivalent, not their lacky anymore.