Hope everything works out with your little girl. Glad to hear she didn't lack oxygene. As for the eating, well apparently I had a similar problem when I was born: I had an "open" stomach, and couldn't keep any solids down for more than a year. Things worked out perfectly though, and I never had any problems with it afterwards.
As for XFree86: I'm glad to see _something_ happen at the very least.
If nothing else I would hope they do what you say, and they refactor the whole thing in smaller pieces: the hardware abstraction (XAA/DRI/Input/...), the networking layer, Xlib etc etc. Loads of projects have a valid reason to use opengl (DRI) or the 2D drivers without X. There's PVR boxes like MythTV, PicoGUI, Fresco, E17's evas, and many others I'm sure. Instead of duplicating hardware drivers (like KGI WIP or DirectFB do for instance), everyone could use a common base - it would improve the quality of the drivers since they'd be maintained and used by lots of different projects and in different ways. Some of these people looked into using XAA without X, but it quickly became clear that the XFree86 people had zero interest in it. The general impression was that "there's nothing but X". Similar thing with DRI - it doesn't have to be linked to XFree86 (see the DRI FAQ or FBDRI), but is so in practice.
I wasn't there when Linus refused to merge KGI in the kernel, but the impression I got was that he did so because he didn't see where it was going (lack of focus), and he didn't want to commit everyone to this in particular. (lock-in) A lot of people got away with the message that the GGI/KGI approach was inherently wrong - I don't think that was the intention. These days we end up with a whole collection of interfaces in kernel (DRM, FBDev, mplayer mods, nvidia, etc) and userspace (Xfree86, DRI, utah-glx, directfb, GGI, etc), and I'm not so sure we're better off.