Whilst I understand your concerns, until the SUN agreement, I'd have said Ubuntu is still "just another derivative".
I don't understand SUNs decision, my experience of Ubuntu as a server platform was short and painful (it couldn't run BIND 9 reliably), and I would hate that SUN get the same experience of GNU/Linux distros. Because if SUN start hitting those sort of issues they may well revert to Solaris and never come back. Then again perhaps they want a GNU/Linux version that people will want to migrate to Solaris from.
Your view that Debian could become a group of people packaging free software doesn't wash. Without a core and common set of installers, tool chain, libraries, and target versions, the packaging value add is too small to motivate people, and the community will simply dissolve.
Certainly for desktop use there isn't perhaps the need for the quality controls that constrain Debians release cycle, indeed some of these controls are counter productive for Desktop use. Of course if we were in Redmond, we'd just alias "testing" as "Desktop Edition", and people would happily use it, despite the zillion updates everyday.
I use Sid as a desktop, and have relatively few issues. I use Sarge at work as a Desktop, and probably have nearly as many issues, like that damn "don't boot with a USB DVD writer plugged in bug" (having your Debian desktop crash is embarassing), and some serious usability issues with that version of KDE. Of course the reason for running Debian Sarge on my work desktop, is it is "yet another test box" as the GNU/Linux servers have Debian Sarge on. So I personally want Etch out ASAP, so I can have it everywhere. But in reality most people with a Desktop want a little bit better desktop experience, and the reality is that Ubuntu did provide this (I think Etch has probably overtaken that experience now, but the average newbie isn't going to download and burn the Etch installer, and stick in a distro called testing, when Mark will send them a CD with much the same software on and call it "stable").