Magic realism is not a very precise term, and it's one I used casually, but I'm not sure it's as incompatible with the literature of ideas as you suggest. A magic realist may be a "writer of the village," but he writes about the village from a standpoint that's self-aware and cosmopolitan. One Hundred Years of Solitude is after all the work of a man who had lived in Mexico City and Paris and had read Faulkner. In other words, magic realism is precisely a way of responding to those aspects of modernity that you identify as Rushdie's great subject, while also maintaining a sense of place. A writer he often reminds me of is Gunter Grass: The Tin Drum, I think, is both a magic-realist evocation of Danzig/Gdansk and a novel of ideas--a novel of many of the ideas about history, identity, memory, and nationhood that Rushdie has also explored. (The book I've been reading alongside The Ground Beneath Her Feet is Rushdie's wonderful collection of essays Imaginary Homelands, and that's why I'm so preoccupied with his literary allegiances, his political tendencies, and his responses to the fatwa.) Bombay in the 1950s is for Rushdie what Danzig in the 1930s was for Grass or 1904 Dublin for Joyce: an indelible, irretrievable home, alive to the memory in the smallest details but lost forever to daily experience. The loss and recovery of such a home is one of the big ideas in 20th-century literature, and I think Rushdie more than anyone else has advanced and elaborated on it for our own period. But Grass, when he strayed too far from the literature of place into the literature of ideas, began to produce bloated, abstract, hectoring books. And while Rushdie has kept his sense of fun (this is not Headbirths, thank God), I think something similar has happened here. The tension between the local and the global disappears, and the slackness we've both noticed is the result.
But yes, Rushdie is a great writer. No argument here. And I think it would be churlish to dwell on particular instances of sloppy construction or lazy writing in TGBHF, though I would like to complain about the annoying game of flimsily masking some real-life characters (Jesse Garon Parker for Elvis Presley, Yul Singh--please!--for Ahmet Ertegun, a throwaway reference to "Gary Stanton," who withdrew from the 1987 presidential race because of a sex scandal, a troika of downtown New York artists called Mack Schnabel, Aimé-Césaire Basquiat, and Johnny Chow) while allowing others (John Lennon, Robert Frank, Toshiro Mifune) to keep their real names and identities. But never mind. This is a novel, as you say, of ideas, and also a novel about rock 'n' roll.
The questions implicit at the end of your letter are: Can such a novel exist? and Is this it? I'll have to think about the first one, though I'm skeptical. And as for the second: no. Until you mentioned it, by the way, I hadn't realized how little rock 'n' roll there is in contemporary fiction--as real subject matter, not just as the-song-on-the-radio-the-summer-I-got-laid-for-the-first-time period detail. I had to dig pretty deep, and all I could come up with was Don DeLillo's Great Jones Street (not one of his best), Roddy Doyle's The Commitments (charming), and an, I'm afraid, entirely forgotten novel by a writer whose name I don't even remember called The Man Who Killed (or maybe it was Shot) Mick Jagger, which I thought was great when I read it, I cringe to think when. I'm sure there are others I haven't read, but you're right--it's striking how little there is. (Answer to your question: Good question!)
How well you think Rushdie deals with rock 'n' roll depends on what you think rock 'n' roll is, and I have to say I think rock 'n' roll is the wrong topic for Rushdie to tackle. But this may be generational: Rushdie (and, I take it, you) has some lived sense of the pre-rock-'n'-roll world, and of the cultural earthquake rock 'n' roll produced when it met the Utopian impulses of '60s politics. (I must say there's been so much trashing of this moment and its consequences abroad in the culture lately that I'm happy to see you and Rushdie defending it.) I grew up sick to death of hearing about how great the '60s were, and the music I first responded to viscerally was punk, the antithesis of the bloated post-'60s art-rock crap that Ormus Cama and Vina Apsara seem to purvey. (Rushdie is unsurprisingly contemptuous of punk: Its analog in TGBHF is "runt," and its inventor is Antoinette Corinth, one of the novel's villains, who I guess is meant to be Malcolm McClaren.) I'm sorry, but what about Vina and Ormus' supergroup VTO? The name recalls, of all things, the Canadian post-Grand Funk Railroad combo Bachman-Turner Overdrive (Bachman-Turner Overdrive! I mean, come on!), but the group sounds like (and thank Zarathustra we can't actually hear what it sounds like) Emerson Lake and Palmer with Tina Turner out front. And check out these lyrics:
It's not up to you no more, you can't choose if it's peace or war, just can't make choices any more, your nightmare has come true. And when the day becomes the night, and when you don't know wrong from right, or blind from sight or who to fight, don't tell me you feel blue.
For Jack and Jill will tumble down, the king will lose his hollow crown, the jesters all are leaving town, the queen has lost her shoe; the cat has lost his fiddling stick, so Jack be nimble, Jack be quick, as all the clocks refuse to tick, the end of history is in view.
I have a bad feeling this is not meant as parody. Rushdie is a man who, to judge from stray allusions in the text, digs Steve Winwood and Sting, along with Paul Simon and Randy Newman (who are good enough songwriters, but not exactly pagan rock gods). He may be hip enough to quote "Downtown Train," but he gets the lyrics wrong (It's "will I see you tonight," not "will I see you again.") He's listened to a lot of records, but I don't think he understands rock 'n' roll, the impulse behind which is not Orphic but Dionysian. You don't play rock 'n' roll because you have deep thoughts about the end of history (though you may end up with them), but because you want to make noise.
I think I've made enough for now.