I'm afraid you're right on all points exept the dimishing return for the same route. I'm a fan of trading and would like some incentive to build a more realistic trading network, but creating one route is now the best thing to do, as you can protect it better and boost it with econbases.

That is the best strategy for using trade routes to make money.
No, there is no diminishing return for just stacking a route between two planets.
Trade has another advantage in that it can affect diplomatic relations. If you spread your trade routes around you can improve relations with your neighbors. In the later stages of "a regular" game where your tax economy is the primary income; trade routes are a nice income bonus but are worth more in being able to turn a friend into an ally.

No diminishing returns, at least for now. In fact, according to DA rules, trade routes become more valuable over time. Although, with the bulk of income being generated by the economic starbases, it diminishes the value of Galactic Privateer.

The value of trade is greatest when planets are few and far between, like in the Large Galaxy / Uncommon Stars / Uncommon Planets / Abundant Asteroids / Occasional Anomalies / Tight Clusters galaxy setup I plan to play when my exams are over and I can open the box. It will both generate a good amount of your income and gain you better deals during diplomatic tech trading.

The problems with dependence on trade are the 'poof-goes-trade' mega-events like:

-Peacekeepers - Those damn robots don't know the meaning of peace: they'll destroy your painstakingly put-together trade network, and they can only be fended against if you've maxed out your weaponry, miniaturization, & propulsion techs, and are able to build super-offensive super-fast big-logistics fleets.

Pirates - Largely similar to Peacekeepers, but they won't need as advanced warships to defeat them as PKs would.

Dread Lords - If they survive long enough to start building warships, and worse, making fleets, then it is inevitable that your trade network gets crushed. Once again, you'll need maximized weapons, engines, miniaturization, and logistics to fight them straight.

Diplomatic Assassination - This event causes a war between you and your trade partner and the trade routes die - leaving an empty shell of economic starbases doing nothing.

Normal Planetary Capture - If your or your partner's planet gets captured, by any means, by someone else, the trade routes go poof and you get that empty-shell effect again.