How do you ensure that ISPs follow a specific prioritization scheme? You suggest that companies can be trusted, and that the general populace and its representative government can not. Companies typically serve their bottom line first, and their customers second, and only in the process of serving their bottom line.

I’d suggest that you’re looking at this entirely from an engineering perspective, without considering people or policy. Yes, what you suggest would probably be an optimal solution, if could could actually be implemented, and if anyone would voluntarily follow it, or could be forced to do so. But until those problems are solved, you can talk yourself blue in the face without getting anywhere.

I would recommend this article to get a good idea of what Net Neutrality regulation does.
http://www.digitalsociety.org/2009/09/hr3458-a-dangerous-experiment-in-internet-regulation/

Yes you’re correct. Net Neutrality rules could allow aggressive applications to degrade low bandwidth applications. That means some users would harm themselves and harm others.