What a fascinating post. I mostly agree with your spectrum, and with the point that the ones on the E-G end are veering away from fanfic; I wish people would just label them "original fic but picture Xiao Zhan and Wang Yibo," honestly (or maybe that's uncharitable of me).
I have enjoyed quite a few modern-with-cultivation AUs for CQL/MDZS, but I feel like strictly mundane ones tend to, mm, the characterization tends to be flattened out by default? For instance, with one or two exceptions set in modern China by someone who clearly knows what they're doing, I don't think I've ever seen a mundane AU in which I agree with Yu Ziyuan's characterization--I feel like the things which motivate her in canon are so inherent to her exact situation that there is no way to translate them to a mundane setting, and she tends to end up as a caricature. Likewise, most mundane AUs just have inherently lower stakes than the xianxia setting, and as a result a lot of people fall back on "Wei Wuxian did nothing wrong (ever in his life)" rather than trying to translate the actual terrible things that he ended up doing.
I think a good enough writer can pull it off! But it's hard to find.