I agree that there should be some narrative to the game function- otherwise, I wouldn't even be playing Descent, but chess or checkers all the time- much simpler rulesets. What I am describing I see as a balance between narrative and mechanic simplicity. My favorite example of this in Descent is line of sight; I really do like Descent's system, even if there are a few cases where you really shouldn't and do, or should but don't have line of sight. This is because determining line of sight is so easy, and in most cases, also very accurate.
It is not about using the official rules (my group uses one or two houserules of our own), it is about having the official rules be clear- at this point, pre FFG response, we aren't even sure which one of us is houseruling- I see that as a problem.
In terms of the knocked out heroes- they are off the map, and essentially out of play. They can't be targets of monster abilities for the same reason they can't be targets of hero abilities. They can't be targets of attacks also because it is impossible for them to suffer any more damage or fatigue.
EDIT: Omnislash- yes, the FIRST part of soothing insight would not work. The SECOND part of the skill is, however, passive- a hero can discard it to recover a wound. This is sort of what I'm talking about- even enabling certain skills causes you to consider which parts of certain abilities are allowed.
For Vampiric blood, I would argue that just because it's passive doesn't mean it's still in effect. For example, the bit about recovering fatigue for a knocked out hero is nonsensical.
Also, browsing through the unofficial FAQ, I found this: