Hey mate. I think you bring lots of issues here. I do believe it would have been better to divide, but none the less...
I absolutely agree that witnesses should be picked judged upon their deeds. I can't say I completely agree with the pay cut, and here is why...
The main problem today is that users upvote witnesses without understanding as to why they do it.
Without going deep into the philosophy behind things, I believe that every 3 months all votes should be reset and something like an election campaign should be held for a week or so (at this time maybe there should still be the old witnesses in place in order to maintain the system).
This would allow for a fairer vote distribution and witnesses would have a chance to prove why they deserve to do so.
Apart from that I think that the money they earn (is rightfully theirs) but each witness should use a portion of his power down to develop the platform / community - hence the large pay.
I cannot comment the part about POW as I am really unsure what would be better atm.
In order for the Steem price to get fixed, I think that for one we should disable the option to trade steem anywhere apart from the internal market (thats for the time bieng, until we can introduce ((this has to happen very quickly)) a more stable use for steem, like smart contracts that will allow us to use it for other purposes than just enetereing and exiting the platfrom).
BR