As it happens, I did miss your earlier points, the most important of which for the purposes of my discussion would appear to be...
"Man in the middle attacks have been the bane of encrypted connections where the encryption session is set up purely over the vulnerable connection since their creation."
"The only way we can have somewhat secure encrypted connections is if the keys used to setup the encrypted link are passed separately."
OK, I see your point. There are too few pre-shared keys in this world. One or two will be baked into your operating system (for internet update services) but most of the rest will pass through your ISP's wires at some point, and for any key exchange that follows a recognised protocol a malicious ISP can write a program to slurp the keys as they pass, so...
"ISPs are one of the few entities that can easily perform man in the middle attacks on the internet. The only thing preventing them snooping encrypted internet access is fear of legal repercussions, they can quite easily if they wished break and observe or even modify encrypted connections if they so wished."
However, I'd offer two counter-arguments.
Firstly, as long as the legal repercussions remain, no ISP will touch this with a barge-pole. Any such snooping would quickly become public knowledge, because it would be a major operation at any ISP to install it and the IT staff there just aren't paid enough to keep that size of secret. Even if they did, it is only a matter of time before someone bothers to independently verify the exchanged keys using an alternate channel, like a piece of paper.
So whether such snooping is officially legalised, or attempted on the sly, everyone will know about it. Secondly, then, I think you've underestimated likelihood of the legal repercussions ever going away. Who would object?
First up is just about *anyone* doing e-commerce, let alone online banking. With mass-snooping, all the mafia have to do is get their henchmen employed by an ISP and suddenly they can pick off high-value targets at leisure because all the information gathering is being done "legally". Commerce is a seriously powerful lobby. In the US they proved more powerful than the NSA when they overturned the ban on the export of 128-bit encryption.
Second up are various courts. Much to the government's repeated annoyance, they don't control these and aren't likely to any time soon. Legalising mass-interception of communications would require a *lot* of legislation to be torn up, including a few treaties we've signed with other sovereign nations. Messy!
Third up are probably the intelligence services. The kiddy fiddlers and suicide bombers can easily pre-share their keys on scraps of paper, so the GCHQ staff will be given the job of sifting through a gigantic pile of information, secure in the knowledge that it contains *all* the ramblings of teenagers and none of the plans of the people they are interested in, just to let some barmy home secretary get her kicks. I'm not remotely surprised that our Stella has attacked the government on this issue, just as I wasn't surprised that she attacked their use of torture, which she knows full well merely confirms the mis-conceptions of the goon with the hose.
Last up is the electorate. Here in the UK, at any point in time, about 60% of the population *didn't* vote for government. They will need little persuading that this crosses some kind of line. (Specifically, a few memory sticks on trains will be all the persuasion they need.)
Unless the government can get past *all four* lobbies, a mass snooping law would fail.