I agree with all of this. In principal, I don’t even disagree with your PvP flagging idea, since, well, that’s what’s happening right now with Darkshore as it gameplay cycles from Alliance and Horde control.
However, what I would more like is if the faction barrier dissolves next expansion in an official peace treaty so that all players can play together to fix faction balance issues by unifying the factions. Narratively this would end the faction war, and, say, if Saurfang survives, it could be seen as the Night Elves staying vigilant that the Saurfang actually reforms the Horde so that the faction war never happens again.