Not sure what you mean by playing the way we should? Even if we add Modric, Jose won't give up on his way of playing and relying on quick transition and counter more than controlling the game by possession. And while Modric is tremendous even in that aspect of the game, actually that's been one of his biggest strength, that still doesn't guarantee you anything.
Playing with competence, confidence and control ( I could add some more C's, but I think they'll do) It wouldn't matter how Jose set the team up - Modric being on the pitch, in midfield, immediately forces deference from those around him. He's a conduit that forces a team to play and someone others can rely on to the point where it's an organic progression. Even if we continued with our current way of using the ball, Modric would force us to do what we do, better. He guarantees you a level of play only the top teams actually have. Even his worst days are measured against himself - now that the other true midfield maestros have retired - which is no bad thing when so far ahead of the majority, and by the majority, I mean practically every other midfielder out there not named Kroos or Silva(if you wish to class him as such).
He does not rely solely on physical attributes, but I think you're underestimating them also. He relies on them much more than Xavi or Pirlo for example and they were done by the age 35 on the highest level. He is pretty explosive, which enables him to leave his marker or beat the pressing most of the time, he is great in the defensive part of the game, excellent in transition and those part of his game will start to decline. Pretty much the same way they did with Iniesta.
You're conflating a lot here. Iniesta is a very different animal to the others and Xavi had a tremendous, if subtle engine for the majority of his career. He may have been one-paced, but he could pass and show for the ball throughout his tenure at Barca and that takes a lot of gas to do. Modric is more explosive than all the guys you've mentioned, but still, his mainstay is his tank and he has shown for a long time he can use it in numerous ways and as he ages and is less explosive, he'll still be a strong one-pace player who finds other ways to circulate the ball (and himself) than using short-burst acceleration. Unless you expect his fitness to fall off a cliff rather than be a steady and gradual decline, there's massive use in Modric, as an elite player, for a few years yet.
Yeah, I would. As I said even the players who were much more comfortable in the deeper role like Xavi or Pirlo felt it. Modric can play a DM, but he is best when he has a cover behind him and that's why Croatia looked best when Brozovic was covering for him and Rakitic.
I'm not going to go into a battle of semantics here as playing deep can mean more than one thing. In Modric's case, he'd surely be considered a 'DLP' if he does drop deep in the future. The main point here is he's not done once his role, or his current manner of playing, changes.
Now, honest question. Did you ever perceive that Schweinsteiger will fall off the cliff so much the season we signed him? I mean just a year ago he had an all-time great performance against Messi in the final and very good tournament overall. He depended a bit more on physicality, but his intelligence and usage of the ball should have still been a great upgrade and he just couldn't keep up or contribute anything. Now, not saying it will be the same with Modric, but you can't beat your age and his decline will happen pretty soon.
Schweinsteiger was riddled with injuries, which is the only reason Bayern even contemplated selling him. His was a much more uncertain ride into his 30's because he was showing great signs of wear and tear and all the problems that then befall a player who is breaking down entered the fray. Modric has had very little issue with his fitness or injury and I'd not think the same way of him (being here) if he were a crock.
His wages and transfer fee will also probably be huge, so counting all that it's understandable that people have concerns.
Luka Modric is the best at what he does on the planet - you pay a premium for that. We would actually need him more than he needs us given what he's won over the last four seasons and how he's performed throughout. We've to push the boat out sometimes, Modric would be one of those times. You work the squad around a player like that - what I mean is those saying the money for him could be used on more, supposedly, problematic positions should come from others in the squad being culled to make those funds available, not in lieu of a player like Modric who genuinely has transformative power going from his level to ours.
If Madrid puts him on the "available" list, yes indeed, it would be hard to say no, but considering all this I wouldn't mind or blame the club if (hypothetically speaking) they say no to that move.
I think it would be a massive oversight, but I guess continuing a back and forth over something that's clearly not going to happen is pointless.