A great summary of the current state of Digg. It is a shame that something that started as a good idea has disintegrated into a what is really now just a farce.
I also think that it is unlikely to change because Digg gets a huge of number of page views everyday and hence is a big money spinner for the owners.
The points in your post made me think about my impending web site and whether I have the right stuff.
The only question I could not answer a "yes" to was question 5. I am not exactly sure who my audience will be because the content will be somewhat eclectic. Maybe the best description of my future audience will be dilettantes with adult attention deficit disorder - basically people like myself :-)