As a consumer, downloading Flash has never been an issue for me, and it's usually a painless process to acquire. I never wanted MS to kill Flash, I just thought it was nice to have options.

As for your situations- I'd prefer situation 1 if the best plug ins became fairly ubiquitous the way Flash has (until the iPad). If a plug in became favored by developers and a lot of apps were written with it, it's no big deal for consumers to download it once and have it on their systems. Most didn't mind with Flash, and I don't think too many plug ins are going to rise to the top enough to be this common. Maybe it would have never happened with Silverlight- but without the iPad coming out my money would have been on Silverlight becoming fairly common to most computers.

Situation 2 is where we're going to end up, and it sucks (imo) because we're still tethered to a language that was never designed for applications. Sure we are making changes (and I'll admit, I haven't looked deep into HTML 5 which I know has drastic changes), but at the end of the day we are still shoehorning in application-like behavior into something that was designed for presenting and navigating documents.

The thing that bums me out is that on one hand you have something designed from the bottom up for creating web applications. On other other, you have something shoehorned into a document presentation language that wasn't originally meant for writing applications. Web development is constantly about abusing HTML enough to trick the browser into behaving like an application, and it's the users who suffer because they want to have the kind of behavior they see in traditional desktop applications in their web applications.

I've been waiting for YEARS for someone to come along and come up with a better way to write web apps than pushing HTML to limits. When Flash came out I REALLY thought that was going to be it, but Flash really didn't work out that way- as flashy as it was, it was never a good choice for line of business apps, and that is a huge driver of software that is written today. Once Silverlight 3 hit the shelves, we finally had a well designed product that could do the flashy stuff, but ALSO allowed the ability of writing really great line of business apps across the web. I actually regret that it came from Microsoft, because if it had been developed by someone else I think people would've given it a lot more credit.

So what I see is that, despite having a powerful tool with XAML based applications that can run on the web, once again we are returning to shoehorning stuff into our beloved hypertext markup language. It isn't that I want to make the developers lives easier in spite of the consumer. It just seems to me that it is far more challenging to write a web app than it needs to be, and ultimately the consumers suffer because of this.

An example- people have become so used to certain aspects of web apps that are there because of the limitations of the toolset we've had for the last 10 years that those behaviors become expected even when superior options are available. In the current app we're writing (in Silverlight) we have so many tools that behave in a more intuitive, easier to use way, but the product owner continually asks for things to be done in a way resulting in a more difficult end-user experience because it is a "web app". In fact, once we went out of browser (essentially turning it into a desktop app) she all of the sudden started becoming OK with certain controls because it no longer felt like a web app. Our abilities hadn't change, but suddenly since we weren't in a browser more fluid presentation became OK.

My point is, consumers have gotten used to a crummy user experience because of the toolset we've had available and they would be better off if we were able to develop apps in a better way. It isn't just about making the developers lives easier, it's about building a better product.