Well, I don't know what sort of class you are in or what level a research project this paper is designed for. I can imagine the expectations of college writing in Pakistan is somewhat different from American college writing, though I do not know what these expectations would be.
I would say your questions and thought points are far too broad for a first or second year class, and I have a hard time seeing these be answered to the extent they deserve in a paper shorter than, say, thirty or more pages. You have good thought points, each deserving at least ten or so pages. The first question alone is worth a book. I suppose as a brief, chronologically-organized introduction it would fit a shorter paper.
The earliest, easily-gotten source of a westerner writing about koryu systems that I can think of is F.J. Norman's "The Fighting Man of Japan" which was published in 1905 or so and recently re-issued by Dover a few years ago.
Then, as Yoj alludes, a large change occured when the Allies restricted certain aspects of Japanese culture post-war. There are some interesting e-budo posts available to a diligent researcher on just how much restriction and whatnot.
But there is forty-years difference between those times...A graduate level thesis would be expected to look at why and in what ways Japanese culture may have been trying to mirror or overtake western political systems, and to what extent koryu does this. But a lower level class paper probably wouldn't and it may be digressive for you to follow this too much.
I am not sure what you mean by "state of affairs" as if there is a common thing to the koryu, and I don't think you can try to narrow this down without having pretty deep knowledge of more than one koryu. Attitudes towards westerners are probably not really shared outside many koryu beyond "yeah we accept them as members" or "no we don't" and inside the koryu I can think of I cannot think of being told much explicitly even as a member.
Whether the effect of westerners is positive or negative, or having some of both, is an evaluative judgement, and pretty different from the more descriptive and historical points you cover. I'd abandon it or save it for a closing section, and for that section you will rely on the opinions of posters here as much as your own. Do you really want to do that? A shift of tone for sure. Again, this might be expected for your project, but I would discourage it for the level of papers I used to be familiar with.
The Correct Way To Teach These Arts is probably whatever keeps getting them taught, unless you don't like the way they look, in which case you would say they are incorrectly taught. Those studying them may beg to differ, however.
Good luck. Submit it to EJMAS at the end of the semester.
J. Nicolaysen
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"I value the opinion much more of a grand master then I do some English professor, anyways." Well really, who wouldn't?
We're all of us just bozos on the budo bus and there's no point in looking to us for answers regarding all the deep and important issues.--M. Skoss.