<blockquote>You can simply put several signal posts in a row, and read the red/amber/green streak that goes by the cabin.</blockquote>
well, you can. But the cab-signal system also gives you an advantage, as you have a continuous
A missed Square (double-red, absolute stop, whatever it is rendered as in your neck of woods) should trigger an immediate emergency stop of all trains in the vicinity, cab-signal or not, anyway.
<blockquote><blockquote>Some slower but WAY busier lines also need to get away with the old block system, in order to reduce the spacing.</blockquote> <p>Ah, the good old "throw safety out of the window to increase profits" way of managing things.</p></blockquote>
Well, no. The system removes (actually <b>disables</b> unless a non-equipped or faulty train comes) the static, side-mounted block system; <b>replacing</b> it with a dynamic, moving block system. Each train knows where the previous train is, its own speed (obviously) and the speed of the previous. And of course, the brake distances.
SACEM (and the like) computes the safe stopping distance, and can cause everything from slowing down all the way to hitting the brakes, in order to keep the safe distance held.
The "5 meters" (actually, I saw a couple times even closer) obviously can happen only when one train is stopped (in station) and the next train approaches. Nowadays, they've tuned the system with more space, not because it was particularly unsafe, but because it was occasionally freaking out passengers... The damn thing has been working, cramming LOTS of commuter trains daily for 20 years. It's working fine, thank you very much :)
Now about joining the trains, it might work, until you want to do things such as stop in station or drive fast between the stations...
Obviously, when trains run their 'normal' 70-80km/h, the software spaces them several hundreds of meters apart. AT LEAST (dunno what the emergency braking distance from 80km/h for a MS61 or MI2N is, but the commercial deceleration is enforced).