Well, I disagree with many of the ideas being presented as mutually exclusive.
I've done my aikido in open rooms: With gloves/Without gloves, With gi/Without gi, in MMA and BJJ schools, and as a third kyu totally dominating every shihan I have ever met....with no change in me doing much of anything..... but Morihei Ueshiba's Aiki.
No problems at all.
I would suggest that Aiki is not and has never been, the issue, but rather the lack thereof. Aikido once was and should be again, among the most powerful arts the world has known. The Japanese have no way of fixing it that I have seen or am aware of. We need to do it for them, and for ourselves!
I kind of assumed the type of competition we were talking about here was match competition with strict rules, a referee and such. That's why I was hypothesizing about how aikido match competition might differ from MMA rules (if they would be the same, why study aikido instead of going to an MMA school only if you want to compete with MMA rules?).
What you are describing, to me seems to be more along the lines of free form sparring / rolling / randori, not match competition (or is it?). In my limited experience in sparring, it appeared to be more like a training or testing tool than competition (learning being more important than winning, mostly).
I was thinking that competition meant match competition, not sparring / rolling / randori. But from your post and Kevin's, I now realize that it can mean either of those things. Sorry for the thread drift I caused by my misunderstanding.