Based on feedback I've been hearing in the forums, in support requests, and from clients, I recommend a new interface for templates which pulls in some of the power of classes without being overwhelming.
It could address the following:
The decision to display subterms might be best characterized as a choice of how to pull in content for the primary content zone. See in the popup how the user is allowed to select the source of content for the primary channel. Simply changing the query to return teasers of overviews of the subordinant terms while utilizing the same display would be highly advantageous for theming and other reasons.
"Auto" would switch to subterms if no posts were tagged to the nav term.
I like the visual representation of the templates. I think that will really help our users.
Also, the ability to enable special features this way cuts out the stuff our clients don't need to see in classes.
I think this main reason this is powerful is that the options are presented in context.
I've updated the comp per our brainstorm yesterday with more ideas. The various options should all be greyed out unless they apply. The first control under overview is image size and alignment. (The last option is slideshow, which should only be enabled if there are multiple images). If a user hovers over a greyed out thing, it should tell them why (e.g. slideshow display is not available. add additional images to use slideshow mode.)
The tease overview display seems much more elegant as just a checkbox, perhaps tri-state as was in your comp. Adding a classes-like control isn't worth it or as clear.
The use custom template option will show all the other templates available that are not standard and will gray out all other options.
You can look at the full support ticket here: [#710] A better way to deal with subterms and standard templates