That is a very astute summary of the issues.
I would love to see residential ISP's make an honest case explaining why the existing system is broken. (Where end-users purchase internet service from their residential ISP and online businesses purchase internet service from their ISP's - both with the understanding that packets will flow between the two, unrestricted. When demand exceeds capacity at peering points, each end will make a reasonable effort to add capacity at peering points providing customers at each end what they have paid for).
I'm not against the idea of residential ISP's turning an honest buck. After all, they really did invest significant dollars in infrastructure, including negotiation for rights-of-way in municipalities. Further, they need to maintain that network, and upgrade the network as demand increases. I think that they deserve a fair chance for an honest return on their investments. However, the idea that residential ISP's should be allowed to double-dip on selling access seems quite insane to me, and is counter to the open principles employed since the foundation of the internet. We can thank Ed Whitacre Jr, former CEO of SBC for coming up with the idea in 2005/2006 (as far as I can tell) that the residential ISP's customers are both customers and products to be resold to content providers. The Internet doesn't work that way, and never has. The idea that content providers are getting some sort of free lunch on the residential ISP's dime is laughable; it's just a shameful distortion of the facts. The residential ISP's bandwidth has already been paid for by their customers, and the content providers have already paid for their own bandwidth. I have yet to hear a compelling argument from any ISP's about how the existing system is broken (other than, to paraphrase, "because we can").
As a freedom junkie and pseudo-Libertarian - part of me believes that government regulation of the internet opens up a can of worms. However, residential ISP's demonstrating their willingness to distort facts and abuse monopoly powers that they have in many markets. Is there any reason why residential ISP's should not be regulated accordingly?