Even though I'm a very 'mixed' type of writer/coder, I find normal mode very useful because moving around in the document, for me, is much faster that way.

So even if I only have to move x words to the left, delete until the first occurrence of character y, or change the text inside the very next quotation marks (one of my favorite tricks), the 'hassle' of switching between modes is worth the ease of moving around the document. In the few cases where I need to do something even more trivial, I can still navigate the 'regular' way in insert mode.

Furthermore, I find that I generally work better if I don't just rapidly and constantly switch (mental) modes, even for prose. I'm starting to feel my 'instant' connection to the output makes me sloppier and makes it harder for me to reason about what I'm exactly trying to do. So for me it even has a psychological benefit to use an editor that has modes.

For me, the 'hassle' of moving between normal and edit mode in vi is far better than having to use a modifier key for every single command.

It works out in practice that you have vi-like modes in emacs. When you hold control down you are in one mode and when you hold Meta down you are in another mode. The difference is state. In vi you have to remember which mode you are in. In emacs you know by which modifier you are holding down. The issue of compossabity is orthogonal.

For example in emacs you can move around, cut, paste, do minor manipulations like swapping words or case all while holding control down. When you want to enter text you let up.

For me, I was used to mainstream text editors that use modifier keys. I found vi difficult to get into, but I finally grokked it when I considered 'normal' mode to be affected by an imaginary key called 'ctrl-lock'. Like numlock and capslock, ctrl-lock keeps your modifier key 'held down'. It's not quite accurate, but it was the conceptual shift I needed to 'get it'. Also, you don't have to remember which mode you're in in modern vi clones, as they generally tell you in the status line. Not that you particularly need it, because when you're comfortable with any editor, you have a practiced set of moves that you don't have to think about.

Now I'm not a vim god, but I've used it enough that I have muscle memory that affects my use at the command line - I'll want to change something in a parenthesis and will type "ci(" (change inside parenthesis), only to find the literal characters appear... :)

Exactly. And since I recently mapped 'normal' mode to the Caps Lock key, it's even easier. I did this because I was forced to use a keyboard that had no ESC key, but it's been very useful with vim.