Some years ago I read a short treatise on "hardening" hiking trails; this discussion so far reminds me of that. Up to a certain point, a trail could be marked with a few paint blazes, and hikers would naturally stay on a narrow footpath. More hikers and/or poor drainage meant more efforts were required to keep the hikers on the trail, such as barriers near switchbacks, ditching and/or surface treatment (gravel). The alternative was a greatly increased impact area, often in environmentally sensitive areas. More hikers again, and a wider path needed to be covered in gravel, and ultimately even paved. Paved trails are, of course, more accessible to handicapped people, so it becomes necessary to relocate the path to reduce the grade in certain areas.
I've seen this kind of thing happen in the Great Smoky Mountains NP; one trail that was a dirt path in my youth had boarded steps by the time my children were walking, and now it's been entirely rebuilt for increasing foot traffic. (That path is still handicapped inaccessible -- for now -- but wheelchair users can take other trails nearby. And some of those have been widened a time or two. Multilane hiking trails?!)
I think there's a direct analogy between hiking trail "hardening" and discussions of potential C&O Canal trail improvements. At the extreme, tricycle users sound like their requirements are similar to wheelchair users: wide paths, well packed gravel or macadam surface. Perhaps some (Surly?) fat tire cyclists are analagous to solitary hikers --- they have the capability to handle bad surfaces, and the adventurous spirit to wade through mud if necessary. In the middle are many of us: we've done a lot of bike touring, mostly on roads, and are often unprepared or poorly prepared for rougher conditions (think White Mountains for AT hikers, or the C&O for cyclists).
Frankly, I'm fine with baldly stating that the availability of the wilderness experience of backcountry trails is more important that allowing access to all users, regardless of the accommodation that they require. Along the same vein, I think the relative wilderness of the C&O so close to the D.C. metropolitan area needs to be preserved, even at the cost of discomfort or even exclusion of some potential users.
We should also consider what it would take to bring the C&O up to some sort of "easy gravel bike accessibility." It's a federal park; it would require developing federal regulations for the towpath. (As Beltway Bandits would say privately, "Big money! Big money!" That would probably add 50% or more to the cost of rebuilding the towpath.) Was it the Monocacy Viaduct that had to be rebuilt a while back, closing ~10 miles of the towpath for two years? Now imagine rebuilding 100+ miles, because that's what it would take. To meet those new regulations, they'd have to put in a new path substrate, so dig up the existing path, add drainage tiles, then put the surface on top. And maybe, since the Potomac floods every so often, to save maintenance money, you'd just dig down and put concrete abutments on either side of the path so it wouldn't wash out so much.
In short, plan on closing the C&O or long stretches of it for 5-10 years. Is that what we really want?
After that's over, you still have to deal with the fact that the national parks have been systematically underfunded for about 40 years. So any potholes are going to be left there for at least a couple years, while the budget request goes in to fix them, next year Congress allocates the funding (maybe), and the year after that you can fix 17 potholes (but not the 41 that popped up since the first ones).
Pave the whole thing? How are you going to negotiate with the walkers and runners who prefer a softer, lower impact surface?
I'd suggest cyclists planning "outs" instead. Start on the C&O, if you wish. If that turns out to be too intense, ride the Western Maryland as much as possible. Consider crossing the river and taking the W&OD into town. In short, treat this as a wilderness adventure, and if it's too much, there's other options available.
Just to touch on the water question. For those who've ridden west of the Mississippi, there have been times when water wasn't available for long stretches. It's common to make provisions for that, taking extra water when it's available for times when it's not. Reasonable C&O planning might include taking enough water with you to get to the next town where you can refill, if you're not comfortable treating water.
BTW, I do hope the moderators don't decide to evaporate this entire discussion just because there's been some disagreement. I believe the discussion has sufficient value that it should be kept online. I would hope the mods and the posters would agree, unlike a few cases where an entire discussion has been removed.