I agree with most of what you say, but I got a nit to pick. With these parts:
Maybe Goggle made a mistake letting non-developers buy the Nexus 5 since everyone wants the Nexus 5 to be the best of breed at everything at 40% less than other Android or Apple devices.[...]
The Nexus 5 was made for developers not for consumers..
While Nexus remains the reference development phone/device, I don't think the consumer adoption of the Nexus is an accident. It is by design. You're right that Nexus phones aren't supposed to be the most premium things on the market. But there are several conscious consumer-facing decisions that go into making a Nexus: first and foremost, the pure Google experience, which is very very consumer facing. Google Now integration and contextual search in the new launcher, Hangouts integration, Maps, the new dialer, Wallet, Google Plus everywhere - this is all consumer-facing. Sure, you can get all this in most other Android devices as well, but the experience in those isn't as readily "pure Google" as the Nexus.
Secondly, remember that Nexus isn't just phones. The Nexus 7 has been a stunning success in the consumer market, due to both its price point and pure Google. The Nexus 10 isn't bad either.
Add to the batch of Nexi the fact that Motorola, now Google owned, is creating its own market waves based off of a near pure-Google experience. The Moto G is the best value in smartphones, bar none. The Moto X is innovative. But neither messes with the pure Google experience much, the way other manufacturers do. And now the Moto X is getting its 4.4 update simultaneously with Nexus devices. That, with Google's own Nexus devices, is Google's attempt to show the market that consumers, not just developers, will eat up pure Google if they are given a chance.
At the end of the day, no phone is all things to all people. Google's goal with the Nexus program is yes, to give developers a friendly platform, but also to influence the consumer market.