i definitly don't think you should scrap the scrolling button bar. from what i can tell, like pin87a said that basically just brings us back to what we had from the beginning. right?
a sub-menu in the home screen doesn't really work well as i see it... it will have a tendency to clog up with all the custom stuff people will want to have. i think the one in the current default skin is an example of just that. as a context menu tho its perfect. i thought your idea of using it for settings was a great implementation of it. as settings migth grow even bigger adding buttons wouldn't be a problem. and also for the future i'd like to be able to have a button scroller slide in/out of view in the filelists. which then would leave more space for viewing files...
i'd might like to be able to have two buttonscroller next to each other in the home screen (or in the new filemanager?). then there could be one with main stuff in it and a second with less used stuff in it. also if just one buttonscroller is used with lets say 7 buttons visible i'd say its just a matter of placing important stuff 'near' the center. so to select the 'most' comonly used functions would always be less or equal to 3 moves and one select away
to give you an answer to the alpha-blending stuff it's pretty simple (if you just give us the scrolling part

) it's just a matter of placing a gradually alpha blended png on top of the buttonscroller. then you'll have the notion of blended fonts _and_ buttons.
as for showing whats selected i'd like to have the focus move either up or down one step depending on direction of scrolling. that would give the user a clearer indication on whats going on (i believe). maybe this could be an option in the xml code?
<focus>static</focus> jmarshall suggestion
<focus>onestep</focus> my suggestion
<focus>lastpos</focus> lixxs' suggestion 4
as for other stuff to be controlable:
1. number of buttons to show in the scroller (must be at least as big as the total number of buttons): <visiblebuttons>7</visiblebuttons>
2. wrapping on or off: <wrap>yes</wrap>
3. if there is <buttonheight> there has to be button spacing: <buttonspacing>15</buttonspacing>
4.
i'm not sure if i got it right but with your buttonscroller it would still be possible to have an associated 'big' image with the selected button, right?