You have a few typos that makes your otherwise interesting post very hard to follow. With great fear of introducing new typos, I've added corrections in square brackets below, as well as comments.

> In literary Japanese you would say "sakana de aru", "de" being the particle that links a verb [with] the means with which the verb is executed.

´de´ has a few more uses, than just instrumentals, that you explain in that sentence. Instrumentalis show what instrument (noun) is used to do an action (verb). This ´de´ is often translated as "using" as in "I ate sushi using chopsticks". The somewhat broader interpretation of ´de´ you present, kinda makes sense, but I'm not clear why "de aru" is more appropriate/meaningful than "wo aru" (other than, because "that is how it is").

> However, the actual word is "kawai" and the inflection is "I".

I disagree. The word is kawaii. The word stem is kawai. But I think the logic holds either way.

> This in turn is why you modify nouns directly with "i-adjectives". "kawai[i] sakana", or "cute fish".

It is "kawaii sakana" with two I's.

> That's why when you want to say "not cute" it becomes "kawaiku nai" -- the "i" turns into "ku" because you are inflecting a verb.

But inflecting a verb to its negative form is turning a "u" into an "a" or simply removing the "ru" ending: "aruku -> arukanai", "taberu -> tabenai". Saying that the "i" turns into a "ku" because you are inflicting a verb has no explanatory power over saying the the change is because you are inflicting an adjective.

I think the argument for calling I-adjectives verb-phrases, is that they have tense (the same tenses as regular verbs)

The argument against, is that you can say "kawaii de aru", but you cannot add "de aru" to a verb-phrase.