Re: One downside
"This is Microsoft, you think they cared about what developers thought in the same way they cared about consumers thoughts?" Yes they do care about what the developers would think; otherwise they will be the only developers on the console. You seem to be concerned about this issue because it affect you in regards to your 'kid' so let us take another scenario.
But first what is "family sharing": the "family sharing" is based on the "family list" which based on the "friend list". The "family list" is limited to 10 people only, while the "friend list" is open. Now Microsoft will NOT ask you to submit proof that the person you are adding to the "family list" is indeed a family member (they said that much in an interview, anyone can be added to the "family list"). Nor did you set a policy on how many "family lists" you can join.
Now the scenario: you have a friend whom you play games with online; currently you buy your copy and your friend buy his/her's. But with "family sharing" allowing you to add anyone to your "family list" then both you and your friend could save a lot of money since only 1 of you need to buy the game and the other will get a free "downloadable copy" that you shared with him/her.
You are right that people are influenced when they see a game being played instead of just watching online videos. But looking at it from the developer's point of view, they might lose up to half of their sells because of people who know each other and decide that 1 copy if more than enough between them. Worse still, in the case of single player games, the game could be shared among 10 people all of which will wait for the other person to finish playing!
Regarding the implementation overhaul; I honestly doubt that this decision would have mattered. You see, what the original plan was: the "physical copy" will come with an "activation key" which would have added your physical copy to your "downloaded copies" list*. The change made by allowing "offline single player games" is that the physical copy will no longer come with an activation key and therefor won't be added to your downloadable game library. Your online downloadable purchases are not affected and will continue to be linked to your account. Hence my belief that they realized the abuse that "family sharing" could allow and decided to remove it; and left it to your mind to believe that the "offline gaming" is to blame.
@King Jack: I should have known better... I know better; I honestly don't know why I typed 'digital'.
* similar to what you get with PC games when you buy a physical copy.