Mitspa,
Sorry for stepping in late and no, I havn't read every post in this thread. But what I'm gathering is you are on a solid crusade for grace Grace and GRACE! I commend you for this. However, Grace works itself through in many ways.
Many place in scripture it states that Fear of the Lord is the beginning of X. Yet in other places it says that there is no fear in the Lord. Sounds like a contridiction. But it's not.
We are all on a journey and for us to grasp grace, well... sometimes we have to struggle. In short, fear has it's place in the scheme of things.
Fear can be a great motivator to stop a behavior. The Bible says X, and we ought to obey the Bible, even if it's first rooted in fear if that's what it takes. Like a child, children don't begin to understand until they mature. I tell my kid, "Stop that or I'll spank your butt" and he stops. Why? Fear of getting spanked. As he matures, I teach him the why and what he begins to see, is that love is what drives my admonishment of him. If I train my child right, that fear is transformed into love, and there is no fear.
Fear has it's rightful place in scripture, and as one matures they begin to see Grace. You see, Grace doesn't lower the bar of what God expects out of you. He still sees our potential and pushes us to our potential as any good Father would do for his son. But he also understands when we fall short, so when we're trying our best and we fall short, God doesn't lower the bar and say, "It's ok, I know that's all you can do". No, I think he says something like, "It's ok, you gave it your best shot. Sit down, take a rest and we'll try it again... together. To me, that's how I see God's grace.