Hey Peter, 

I don't know that I'd say the rabbi compromised. He's a Chabad shliach; this is the path he's chosen. My nephew is a shliach in training; he assures me that their goal isn't to make people frum, but to get them to perform individual mitzvot, with no expectations. I don't really believe it, but that's the party line, apparently. 

This is the problem -  right wing Orthodoxy is an anachronism. The non-Orthodox denominations have largely, as you say, left their "Jewishness" behind. The liberal Orthodox find themselves in the middle, defining themselves in opposition to those on either side, gradually losing ground to the Right. I don't know what the solution is.