I agree with most of what you have stated. But
Bringing back cheaper engines will have no bearing on smaller teams competitiveness and in fact it may widen the grid a bit (see my comments below). We already have a budget cap which all teams, bar Haas spend up to, so financially it has little to no bearing.
But more importantly, every time you change the rules, the teams with better idea generators and better tools and processes always move ahead again. The teams further back down the grid all have more wind tunnel time (the most effective tool for delivering vehicle performance) and yet the grid remains largely unchanged over a long period of time.
Interestingly the high performing teams like rule changes as it allows them to use their greater expertise to move ahead. And the poor performing teams like the rule changes as their head of aero will say that the current rules do not allow us to catch up whereas with a new set of rules I think that we can come up with a better solution than anyone else and move up the grid (this very rarely if ever happens!).
So if you want to see close racing, leave the rules alone and allow the weaker teams longer to catch up. The current rules offer the best opportunity for this that we have seen in a long time.