Goodbye sweetheart - farewell to a dead bike

Though, the correlation of height difference that I wish to achieve, between saddle height and stem height, is aptly illustrated in the Capo 2010 image.

This sounds like a good thought process.

This is exactly why on forums like weight weenies, people bang on about headtube length so much.
You can adjust your saddle easily enough, but will the frame geometry (headtube) then allow you to have the bars at right height relative to it?

other thoughts:

• Pushing your saddle all the way back, to compenste for tt length, is not really recomended.
  
• a proper test ride is needed to decide if the bike is too long.
  
• tube failure at the point of butting, sounds like poor tubing/quality control.
  
• Bike CAD is useful for playing with geometries (has shown me what not to buy). Punch in the geometries of the two sizes your thinking about, and see where different stem lengths/ seat post lengths etc. put you.
  http://www.bikeforest.com/CAD/bcad.php