Tong, I think that you bring up some good points and it remains to be seen how complicated/challenging it will be to maintain this setup as is. So far it's been pretty easy, although the jury is still out on the long term since this has only been up for a few weeks.
The biggest reason I am trying this route is because I wanted to have a QT on hand all the time and *always* put frags into QT first. In my old tank I had a horrible experience with monti eating nudis that wiped out many prized colonies and I don't want to risk that again. The prevalence of pests in this hobby is a problem that seems to have gotten a lot worse over the past few years and dipping, while helpful doesn't seem to work all of the time.
I know for myself that a QT tank on a 'per needed' basis would never get used. I'm just too lazy to setup and take down a QT tank and I tend to buy corals sporadically and often, not just in one big order.
In terms of complication... although it looks/sounds kinda complicated, it's actually simpler when compared to a "Display tank plumbed to Frag tank" + QT setup. (I concede that my setup is more complicated than a straight Display/Frag without a QT.) The only added point of complication is the second float switch in the frag tank. Otherwise, all of the hardware in my setup would be present in a more traditional Display/Frag + QT arrangement. (I actually have less, because I have one less set of lights, one less skimmer, one less CA/Alk additive system, etc.)
To your original point though, I agree this is all theoretical until I have run this system for several months with good results. Your point about water volume and dilution is a valid one. I'll report back periodically and if this turns out to have been a mistake, I'll probably convert into a regular Display/Frag setup.
I appreciate the comments and insight! (For the record, your DBTC Miami Hurricane frag that you gave me is in the frag tank and doing great... ;P)