Arcs provide a nice way to eliminate objection number 3, since each arc in an set of arcs can be used as an annotation encoding the directionality and significance of a possible traversal on a multi-way link. I have also inlcuded a simplification based on an observation relayed to me by Steve DeRose. And that is to notice that locator elements are almost exactly equivalent to simple links, except for their annotations. This will also clarify the fact that information stored on an extended link element is metadata about the link itself, and of cirtical importance in representing semantically diverse links. Inline links are recognized by the fact that one of their locators locates the link element rather than by an attribute.
All bare locators are inline.
I think we cover all the capabilities of the current system with this proposal. This collapse of simple links and locators gives us fewer entities, and leaves us with only one kind of one-ended link, which seems sensible enough. While the inline one-ended link is gone, there's no effective difference between such a link and a new tag, so that shouldn't be a problem. I do think it can be separated from the rest of my suggestions. They also provide a markup element where any access rules, policies, etc.