This terrifies me.

It shouldn't. :-)

(btw, I would recommend reading @timcliff's Open Letter to all Steemians - Hardfork 21: Culture Change)

I'm sorry for a relatively short reply, it's way beyond my abilities to respond properly to such long comment on a Friday's late evening. ;-)

Hard work and good content does not mean a post will be worth anything.

True.
But for original, high quality content there's a better chance to lure voters because it increase probability that ... it will lure even more voters.
Steem never promised people to pay for their hard work as if blogging were their full time job as successful professional writers.
Steem can pay something instead of nothing (see Facebook, Reddit, Instagram).
They are Steem users (Steem Power holders) who decide who gets paid more or less for their effort.
Think of Steem as decentralized publisher that splits their profit among all authors (well, that's exactly how it is), where authors are also members of the board.
Now we need to make sure that our Steem can generate profit and pay for good content.
HF21 is an attempt to solve some of issues that we have here.

Steemit introducing free flagging, and letting people take for free what others worked hard for is like a gut punch.

Downvoting is an integral part of a post value eSTEEMation.
Without free (relatively small) downvote pool, people had to sacrifice their potential rewards from upvoting in order to fight abuse.
Retaliation downvotes and downvotes from trolls & psychopaths would happen regardless of separate downvote pool.

They, for free, can take away the steem power it has taken so long for me to gather, in a single click.

No. Nobody can take away your Steem Power. All that downvote can do is affect your potential payout for post, and - in edge cases - reputation (if you was downvoted way below zero AND your reputation is lower than downvoter's)

IMHO using name "flag" for downvotes was a mistake. That created feeling that flag is something special.
It really isn't. In as same way as you are receiving random upvote from random user, you could receive random downvote from other random user who disagree with previous.

steemit are asking their users to police the platform for them, and shrugging off the responsibility for managing the platform onto their users.

Steemit is not Steem. Steemit is just part of it. Steem is our platform. Users. It's us who decide.

I am confident the bidbots will adapt

Agree. But they would have to adapt with behavior that's more in line with what's good for the platform.

Seriously, I need a survival guide, I don’t know how to continue to share content.

Don't worry, @timcliff's post mentioned above could serve that purpose :-)

a 50:50 split encourages curation at the top because you can earn so much more from it so it follows why waste curation on smaller users when you will get more back from upvoting someone big
quality is not reflected by post value at all

Not really. If all knows that alice produce original, high quality content, they can be lazy and vote for that instead of searching for more, but to really get good curation rewards they would have to vote earlier and earlier (before others that wants to do the same) that will make them enter 5-minute window and burn parts of their rewards, until it became more profitable to go and search for undiscovered content.

flagging with no singular guide for users isn't good for the platform

As you said, that's subjective, but there are some guidelines on what's a good or bad reason for downvote.

the average post doesn't come near 20 STEEM, only the top few percent will benefit, at the expense of everyone else

That's out of context, all will have reduced author rewards, above is just estimate where curve shape will start to have more/less impact
in the end it's for the sake of the whole platform

Posting is scary when you can lose everything you have built up with no warning just because someone didn't like your story, didn't like you personally, or doesn't think it is worth what it has compared to what their
own post got

HF21 doesn't change much here. Disagreement on rewards was always one of the examples of valid reasons for downvotes.

we shouldn't be turning on each other with flags

Stop treating them personal. Most of them are not, only a very, very, small portion of them are (and downvotes are really very, very rare in nature)

flagging other users shouldn't be explained as a way to earn more on your own posts

reducing the payout for the average user whilst increasing the cut for curation takes from the user base and feeds the top

Gives incentive to Steem Power holders to actually... hold the Steem Power and vote
Otherwise, who you'd expect to vote for posts?