Ok, I am going to be a bit controversial.
#2, #3 + #4 I agree with.
However, I disagree on the first. First of all just because 0.01 isk wars are the way things work on EvE, doesnt mean it has to be the case here - I know you didnt make this point but im just putting it out there anyway. Do we really want the 0.01 isk wars of EvE?
Whilst it may be a hassle to have to re-do the entire order , remember that everyone else is burdened by the same risks. If orders can be changed quickly and cheaply then the market is just ruled by whoever can stare at the market for longer than the other guy.
However, I have an alternative suggestion.
I think you should be able to modify existing orders quickly and easily as suggested. But not without a cost. Modifying an existing order should cost the transaction fee (or most of the transaction fee) each time.
This will make it a viable market tactic to PROPERLY undercut. Not by 0.01 NIC to see who has the most time to spend monitoring their orders, but by a larger margin to discourage competitors.
(Ok, just seen the last guy suggesting the same.. heh )