1. Correct.
2. We do not know if there will be character flashing with the new engine.
3. This would only restrict you from playing with the "hardcore" players, which I'm sure you wouldn't be playing with anyways since you think character flashing is a major issue.
4. Or you can think of the optimal sets PRIOR to starting battle with more than 1 set of equipment.
5. It only slows the pace of battle with the current engine. With the new engine I highly doubt there will be such horrid lag when changing gear and it makes battle pace faster as a matter of fact due to optimizing your characters damage output.
So... the only problem is inventory space. Cool.
EDIT: Molly you in no way have to wait a full second between switching gear and using a weapon skill in FFXI. You were just doing macros the wrong way and that was you're own fault. Not the system's.