My experience is with IIS but you do take a significant hit especially on a large site. This makes it easy to do a site redesign and switch the nav from LH to RH side for example, or even have it set in user prefs and have conditional formatting. This method is invisible to spiders and all UA's and search engine friendly - they can and will spider the links. This will also wok across ALL browsers even with javascript disabled. I have found javascript navigation buggy on some browsers, expecially Macintosh.
All processing is done server-side.
I might try the .shtml on another site, on pages where listing is inconsequential, just to see what happens, to know for when it's not available. I believe I've seen some reference to the use of CF as you've mentioned it. I stay with plain vanilla html and use lots of simple table layouts, but between the logic of the code you showed and the template explanation, this might be very interesting to give a try with a test template for an existing simple page and simple ssi for a navigation column. Personally I think this is a powerhouse combo and only better software will result. On a simailar note Dreamweaver has a cool 'Library' all you have to do is select the HTML like navigation etc make it into a libray item.