Point 3 is the tricky one. The world above and beneath you needs to be loaded so that the game knows what blocks are above and below you. Imagine someone is above you in the sky and between him and you is an unloaded chunk. Now he places a bucket of water. Without the blocks in between the water will never reach you. But if the game would know which blocks are between you it could calculate the water-flow without updating nearby blocks or without updating anything else (not even it self) in these chunks. But with the actual engine something like this is not possible. A chunk is either loaded or not, there isn't something in between, which makes the structure of the chunk loaded, but nothing else. For Minecraft in it's current state a not loaded chunk simply does not exist. It may be saved somewhere but it can't change and can't be used for anything. If a giant floating island is above you but isn't loaded you wouldn't even see that island.
I think thats exactly what the cubic chunk thread proposes: Unloaded chunks simply don't exists, you can't see them and entities in there don't do anything. For your flowing water example, it can also be done right now: Two players (or chunk loaders) a few hundred blocks away so that there are unloaded chunks in between, an aquaeduct in between which decreases in height every 7 blocks, on player puts water at the one end - and it will never reach the other player. Its the same as vertically with cubic chunks.
I don't know any of Mojangs plans, if they indeed want to change this to also simulate the world in between, they definitely need to change more than I expected. But the original cubic chunks thread linked here simply ignores this issue.