We're not proposing that the IDS/IPS should necessarily be able to MITM the connections. Then you're just putting all your trust into the IDS/IPS and making it the single point of vulnerability (just like the device is now). But if you have a construction that lets you build a read-only IDS/IPS, then you could in theory buy 100 of them from different manufacturers and have them all audit each other.
One straw-man way to do this would be to run a stream of "integrity-only TLS" inside normal TLS. The outer TLS would allow the owner to install their own CA root certificate on the Thing. The inner TLS would be pinned to the public key of the cloud provider. The IDS/IPS would MITM the outer connection and would be able to read the inner stream, but the MAC on the inner stream would prevent tampering by the IDS/IPS.
I'm also not sure whether it's a good idea to make it so easy for typical users to add their own CA certificates to smart devices. Such a facility could be easily subverted by criminals and governments to eavesdrop on a large number of users. (Remember when people would XSS themselves on Facebook by pasting crap into their browser console?)
It's just as impossible to open a backdoor for the owner and nobody else as it is to open a backdoor for the FBI and nobody else. So I think there's some value in making it difficult to eavesdrop on your own devices. Perhaps it really should require taking off the cover and attaching a serial console.
So there might be some further tooth-and-nail fighting in users' future.
Or manufacturers could allow users to set their own trusted certificate. Doesn't need root, can be reasonably secure.
2. I'm not sure that communication transparency is what led to the success of PCs, smartphones, and the Web. Perhaps the Web, but definitely not smartphones. People had to fight tooth and nail for the right to root or jailbreak their own phones!
3. How do you add the ability to eavesdrop on a device without compromising TLS or adding a remote back door that anyone could exploit? The only way that I can think of, and the only way that this has traditionally been done with PCs, is to give local root to the owner.
If the owner has root, then he can make the device trust his own certificate and proceed to MITM it with his own router. But an owner with root can also modify the device's "firmware" to make it behave in ways that the manufacturer never intended, and manufacturers will do everything in their power to prevent this. Nobody wants to admit that they're actually selling general-purpose computers.
If the manufacturers are not going to cooperate (and I don't think they will), then perhaps what needs to happen is that we should start rooting/jailbreaking every smart device we can get our hands on, and thereby force them to be transparent. It can't be that difficult, after all. Where are all the clever folks who helped root and jailbreak our phones? Let's send them some TVs to play with, warranties be damned. Perfect security doesn't exist, and we can use that fact to our advantage.