We had a pretty good discussion going in another thread but I want to discuss my understanding of one specific scenario and get feedback.  Yes, I will moderate this thread but I promise I will only delete totally off topic post and personal insults.  All actual input is welcome.  Even AnonyMint is welcome.

Here is the exact scenario I want to discuss:

1) A cartel gains 50% of the hashing power
2) The same cartel controls about 50% of all the Bitcoin nodes.  These nodes act just like the standard nodes for the most part but the cartel controls the code and can therefore update them to change the rules as they see fit at any time.
3) The cartel decides that the block reward should remain at 25 BTC per block forever

.........

Here is what I believe to be true, everyone please correct me if I am wrong anywhere:

1)  From then on every single block built on the A chain will be rejected by the B network.
2)  From then on every single block built on the B chain will be rejected by the A network.
3)  However, every single transaction that is considered valid by both networks will go into blocks in both chains.
4)  The BTC created by the block rewards in the A chain will not be considered valid by the B network and every single transaction touched by these coins will be dropped as invaid by the B network.
5)  The BTC created by the block rewards in the B chain will not be considered valid by the A network and every single transaction touched by these coins will be dropped as invaid by the A network.