Tom-
Since recruiting numbers are so far down, is there any chance the military will change this policy? No--one of the problems is that the people you need are not the people you have. You need a bunch of low ranking kids to haul rucks, stand post so retaining people doesn't help you with your main problem. That said, you are absoltely correct. When I was getting my MBA we had to analyse our organization--I determined that if you built an organization specifically designed to fail it would look like the Atlantic FLeet Headquarters--everyone reduced to middle managers with no one to lead and no authority. But your point on up or out is a critical flaw and is based on a broken rank structure. Experience and skill means less than rank--so what happens is that most guys retire at 20 or 24 and turn around and get hired by Raytheon et al and contract back to the military at a higher rate than they were being paid---but it lets the military show low end strength numbers
Also, with the skills you've acquired, what do other retired SEALs do in the private sector? A lot of guys go into defense contracting a lot go into business for themselves and currently security jobs i.e Blackwater are a big draw.
Disability is paid at a fixed rate. So 10% disbale gets x dollars a month, 20% get more etc. It use to be that that amount was offset in your pension--so if my pension was 1000, I only got 1000, but the disbility amount was paid by the VA and was tax deductable--really bad deal. THanks to the WWII guys who got screwed for 50 years, the rule has changed that if you have 60% or greater disability and it was combat or combat training related, you get the disability amount on top of the pension amount--
There are other advantages like preference in Gov grants, higher etc as a DAV