IMO, mixed-traffic streetcar for the whole length of Dufferin is a non-starter, due to the line management problems. Higher passenger-to-driver ratio may be good for the TTC's bottom line, but on the other hand, switching to vehicles that run less frequently and are less flexible will make the bunching / uneven headways problem even worse than now. Add to that the cost of building new tracks, and the whole exercise makes little sense.
Having said that, the idea of switching only the southern section to streetcars might actually make sense. One obstacle to that is the absence of space for the streetcar and bus loop at Bloor & Dufferin (unlike Bloor & Bathurst where ample space is available). Therefore, if the said transition is undertaken, then the southern streetcar and the northern bus route would probably have to overlap; for example, the streetcar going all the way up to St Clair, and the bus going down to College and looping there. Per my observation, Dufferin bus tends to be busiest between St Clair and College anyway, hence the said overlap might be acceptable from the passenger load perspective.