I think you're blaming Borges for claims made late in his life, well after his great work was done, by theory-headed academics (and some theory-headed novelists) whom he never gave drop of a damn about.
This morning, I was talking to a friend of mine who went to hear Borges speak at a university campus in the late 1970s, shortly before he died. A clever poststructrualist stood up, spewed out some rigamorole about slippery meaning or some such thing, and asked Borges to back him in rebuking the realistic novel. The frail old blind man responded--gently, my friend says--"Young man, do we have to be so divisive? Whether you're talking about Robbe-Grillet or Kipling, Beckett or James, it's all part of the great dream of literature, and one of the few pleasures allowed to us on this earth."
It's too bad that de Man, et al., hijacked Borges' surface detachment to advance their own theories, but the fact that they did so doesn't tell us much about Borges. When I was in college de Man's successors were hijacking Keats and Wallace Stevens and Poe, and they're still around. Borges will survive, too. Among the many, many things these guys miss is his fierce ethical dimension. If you doubt me on this, here he is dismissing the game-playing nihilists of his time and praising instead one of his all-time favorite writers, the radical moralist George Bernard Shaw:
"The philosophies of Heidegger and Jaspers make each of us the interesting interlocutor in a secret and continuous dialogue with nothingness or the divinity; these disciplines, which in the formal sense can be admirable, foment that illusion of the ego which the Vedanta censures as a capital error. They usually make a game of desperation and anguish, but at bottom they flatter our vanity; they are, in this sense, immoral. The work of Shaw, however, leaves one with a flavor of liberation."
There you have it: Borges arguing for morality. The man gave everything he had to books. You might say that this limits him, but I'm grateful. Reading is one element of what it means to be human. A small and restricted element, I grant you--but you'd have to admit rather a defining one, and Borges explored it to the hilt. I saw an article in the New York Times today about Harold Bloom's new book, which argues that Shakespeare essentially invented the concept of the human personality. It seems to me that Borges invented a modern approach to reading. On the surface it resembles that of the postmodernists you refer to, but at bottom it's much more grounded. Yes, he said that readers invent the texts they read, but all this expressed was his intense, almost erotic excitement as a reader, and the very moral modesty that he brought to writing. His stories and essays playfully trace out the way human ideas arise, unexpectedly molt into something new, bang into each other, die, and sometimes reappear--ridiculously, dangerously, across the world and eight centuries later--to haunt us.
Borges wasn't shrugging his shoulders here and saying, isn't it a hoot? Writing in a politically decadent country, hemmed in at the time by fascism and Peronism, he was issuing a subtle critique of his surroundings. He contemplated the parade of human mistakes with amusement but also sadness, great terror--and, yes, compassion.
So what do I mean by "a modern idea of reading"? This may have to be a two-parter, 'cause I have a lot to say. To begin with, there's Borges' sense (more joyous, less elitist, and a lot less dated than the cosmopolitanism gloom of a modernist like Eliot) that literature is a kind of underground electronic current, which sometimes gets blocked and diverted, but basically spans the globe, and all of human history. There's a reason Borges' metaphors get picked up and applied to the Internet so often. His speculation has helped us imagine a future in which books as we know them might totally disappear, yet writing would live on in some as yet unrecognizable form.
Anyway, Borges' basic confidence in literature gave him the guts to defy the stultifying convention that all Argentine writing must be patriotic kitsch. Young Latin-American readers recognized his courage and honesty, and they were inspired. Borges' stylistic mastery; his advocacy of Whitman and Woolf and Oscar Wilde; his participation in the bold and pivotal Argentine literary journal Sur--the man single-handedly sponsored a rebirth of Latin-American literature.
The Euro-Anglocentric Mavis Gallant may not care about "Spanish-speaking readers" (and really, who is she to dismiss them as "nobody"?), but that's no matter. I think you could argue that Borges, more than any writer, helped to break down continental barriers in literature. Borges points the way to the modern idea of "world literature"--he leads not just to Garcia Marquez but to Salman Rushdie. I know you want to talk about Munro and Moore, and tomorrow I promise to. I 'm sorry to go on about my man Borges. Maybe going on is my greatest proof that he's not chilly--if he were, I wouldn't care so much.