I'm glad you picked up on the alternative newspaper question, for two reasons. One, it spotlights the frustrating limits of Rosen's definitions of journalism and journalists. There is nary a mention in this thick book of any of the leading "alternative" weeklies, which are often stuffed with material that one might expect to intrigue Rosen. There's also little mention of national magazines, whether specialized political ones or big general-interest ones. There's almost no attention paid to radio, where hundreds of of excellent American journalists work, and only at the end does Rosen acknowledge the development of the Internet as a news medium. Even television doesn't get much play here, at least not compared with the audience it garners in real life. In other words: For someone with as sweeping and academic-seeming a criticism as Rosen's, he's done a poor job of defining the terms of what journalists do, where they work, and how they operate.
Two, as you indicate, "alternative" newspapers have been thriving, many for decades, by providing readers with exactly the kind of service Rosen says he wants: reporting with perspective; reader inclusion; making stories into crusades; etc. Their "success" in doing so is of course debatable, but it makes you wonder: Has Rosen simply never read those papers? Or is he avoiding using them as models? My guess is the latter. I'll bet it's a prestige problem. The folks at Pew Charitable Trust and the other purse strings of public journalism would scream: "We didn't cough up several million dollars so you could tell the media to behave like the goddamned Village Voice."
That said, I think you're being awfully sanguine about the state of American media. I find most American newspapers to be quite bad; to argue that they might once have been worse is neither reassuring nor really the point. Most television journalism is horrendous, and some is actually harmful (by misinforming viewers about crime, for example). Either you want that situation to change or you don't, but denying it seems silly.
You're also arguing against straw men of your own creation: A journalist does not need to have a "lunch-pail and straphanger" audience in order to be out of touch. Pick up a copy of the Miami Herald (or, for that matter, the San Francisco Chronicle), and tell me with a straight face that those papers are doing the best job they can to reflect and report life in those cities. Remind me which prime-time network news show it is that deals with immigration, public education, workplace discrimination, and how to solve health and child-care problems. Seems to me that whenever I tune in I am asked to contemplate "The Miracle of Sextuplets."
As for presidential politics, we agree that poor coverage is not exclusively the media's fault, or even principally its fault. But it also seems a cop-out to say that if the candidates don't disagree, then there's no way to cover the issues. I don't think that some of the experiments in this book are all that bad for that kind of coverage. That is, start with local issues; in my neighborhood, they include AIDS, homelessness, housing prices, and the need for a Second Avenue subway. Then look to what candidates can offer (skeptically, of course, since the real story may be that these problems elude solutions on the presidential level). If they don't disagree one iota, then maybe there's a political problem, but I don't think there would be a problem producing good or interesting journalism. I suspect, by the way, that the better New York papers will do something like this as the primary approaches, though they won't call it public journalism.