1. Diaries should be allowed to turn into story submissions
Why? They're publically viewable from the Front Page. If somebody likes X's diary, good. They can view it from their diary page.
2. Dead stories should always turn into diaries
I can see a few things wrong with that. I can see a nice DOS attack from this by flooding the queue with worthless drivel and then having it dumped to the diaries. It eats up Rusty's HD space and cpu having to index that crap.
If anything, I would petition to Rusty a static set of webpages that would archive dumped articles with more than X posts. These dumped stories would have absolutely NO posting and no ratings of comments. All they would serve is a nice way to see possibly good stories with bad luck in the queue.
If my suggestion was put forth in place, perhaps the moderators (those *special* people here) could cull the serious troll bait from the static archive. You know, the last we need to see is about Rusty's Wife (yeah, that was just plain evil) or GNAA trolls.