... there is a market-based soft block size limit that results due to the economic incentives that miners face due to block propagation races.
Yes this is a problem, but it can be solved by the market by increasing fees to cover the propagation risk to the miners.
I don't think so.
There are ways to speed up the block propagation by only sending out hashes for differences in the tree and so on -- and not the full block. This is something that needs to be designed well, implemented perfectly and accepted by the miners. This takes time. If the Bitcoin-devs solve this, they have once again a first mover advantage over all the other copy-coins.
I'm also firmly against increasing the block size just because it can be done. Let's wait and see for a few month how the tx-fees and acknowledgement times will develop once the floating fee algorithm is in effect. Bitcoin as a store of value is currently it's main use case (in my eyes) and a takeoff for micro transactions would kill it. I really don't know why there are so many who were thinking that bitcoin has a future for micro-txs although there is a fixed blockchain. (If at all, transaction replacements are the future in that regard)