I think I disagree with two thirds (maybe 2 and a half thirds) of everything the OP said.
To the first, we definitely do have CPU issues. However, CPU issues can come from a number of different bottlenecks, I seriously doubt any modern computer is choking on drawing the tiles themselves, maybe on looking up what to draw in the tiles, but not on the drawing of the letters. This should be especially true after the OpenGL optimizations. Many computations in 3D graphics can be offloaded to the GPU as well, which could mean that with a proper implementation, the CPU would not have to struggle any more with graphics than it does today.
To the second, there are standard ways of dealing with very large 3D scenes. Look to Bethesda Softworks' Oblivion. Their game world is HUGE, they handle this by splitting the world into with doors (portals), so that at any time you only need to render a small portion. They handle this by not showing objects beyond a certain distance when you're outside, and there are standard data structures for storing objects in the game world that allow fast lookup of which objects are within some distance. Odds seem good they also perform many other standard optimizations: culling based on which way the camera is pointed (frustum culling), reduce the number of triangles used to render objects far in the distance or otherwise unimportant to the scene (level of detail). I am not saying that a 3D implementation could be just as fast as a 2D one viewing the same area, but I think it is unfair to say that simply by having to show that 3rd dimension it would be doomed to failure.
To the third, it truly does depend on what level of detail people find acceptable. This is one of the most dangerous areas of going 3D in my opinion. We accept a letter S as a giant cave spider, but we might or might not accept a large floating 3D S as a giant cave spider. I think if the 3D world were basically a blank grid, we would accept the floating 3D S, but if the terrain basically looked like modern AAA PS3 games, we would complain about the unrealistic cave spiders. As the realism of certain aspects of gameplay goes up, it tends to set a higher and higher standard on the others, sometimes impossibly high ones. As an example, everybody knows and loves mario in all his 16 bit glory, but a lot of people found some of the newer Japanese lifelike androids incredibly creepy, because they were realistic, but also just a tad bit off. I'm not explaining it that well, but the theory is on wikipedia, its called the Uncanny Valley. I guess my point is, generating 3D meshes for every letter would be a ridiculously simple task, generating 3D animated ragdoll giant cave spiders of every shape and size would take hundreds of artist and programmer hours, first creating a base mesh, then writing tools to generate different characteristics on it. Since we're currently looking at the letter S though, I think there could be a middle ground that many of us would find acceptable. As to your analysis, I don't believe it would be a CPU issue, though hard drive space could quickly become an issue as soon as non procedural meshes and textures became involved, and if the game becomes too large, Toady would have a rather difficult time maintaining his free download servers (gogo bittorrent?)
As to your final analysis:
I don't know enough about the system dwarf fortress uses to store its data. The fact pathing is possible at all in large worlds suggests Toady has chosen good data structures in many aspects of the game. That does not mean those structures are optimized in any way for 3D graphics, but it doesn't instantly make them terrible for it either. Frustum culling, raytracing, depth sorting, level of detail all take different amounts of time with different underlying structures. If the world really is a 3 dimensional array as it appears to be, raytracing, frustum culling, and depth sorting would be fairly fast, not optimal by any means, but not slow enough to make a 3D engine unworkable.
Graphics requirements being too great may have referred to CPU and GPU constraints. I don't believe that is the case. I do agree that artists and programmers working to construct every creature and item in the world would be a ridiculously time consuming process however.
As to Toady being just awesome like that, at least we have something we can agree on