Just a thought on this, I've been reading through and there are a lot of great ideas here. It seems that there are no bad choices for alignment of the DRL, but simply different choices, servicing different neighbourhoods, but having the same ultimate goal. Having said that, I offer up this possible solution to the DRL alignment problem, and for it I referred back to the original subway plans from the early post-war period:
The original post-war plan contained 2 "subways": an actual subway underneath Yonge from Union to Eglinton, and a streetcar subway underneath Queen. Having said that, I think that this type of thing would once again work.
Have a completely tunnelled LRT subway (similar to what is being proposed along Eglinton with the Transit City plan) that runs the complete DRL route (Dundas West, down to Queen, up to Pape). However, with that, run the section of the 501/502 that overlap the tunnel in the tunnel as well. The main issue with the Queen streetcars is the fact that they are running on a shared ROW, and thus cannot run at a service level that is efficient enough to effectively carry the ridership numbers. However, if you ran it in a tunnel, it could increase both speed and efficiency.
If any of you have ever been to Boston, and have rode on the Green Line, you'll know what I'm talking about. The Green Line is in essence an LRT subway that begins in downtown, and once it exists downtown, branches out into 3 different lines, where it runs in a separate but at-grade ROW (but this is not until it is outside the downtown core). So what I'm saying is you would basically be running 1 LRT line along the entire DRL (Dundas West-Queen-Pape), and the 501 through it as well (from Roncesvalles to Pape).
Another advantage of doing it as an LRT would be a direct connection to the current Don Mills LRT proposal. If they were using the same technology, etc, in essence they would become one line, as opposed to 2 separate lines requiring a transfer as would be the case if the DRL were built as a subway. I would also propose using the rail corridor adjacent to Dundas West station to be used to extend the LRT line northwestward from Dundas West up to Eglinton, in essence creating a second, wider YUS loop, servicing midtown and south of Bloor.
I realize that there are several issues with this proposal, mainly the interlining of DRL and 501 vehicles, as well as capacity issues if the line experiences higher than projected ridership. Also, when considering LRT vs subway, station distances can become a factor.
In summary: if the subway option is chosen, I believe it should be along the rail/Wellington corridor (least disruption to existing subway/streetcar service during construction, greater capacity for intensification around the line). However, if LRT is chosen, it should be along Queen, for the reasons mentioned above. It should also be noted that if the LRT is chosen along Queen, it does not rule out the chance of having a subway along Wellington/the rail corridors at some point, as the two are not necessarily mutually exclusive options.