If you don't get replies it is probably because nobody here knows the answer directly. Perhaps someone in one of the ND threads might be better situated to answer, although much of what you ask is going to be beyond anyone's knowing.
ND is notorious for requesting the passport at the beginning of processing, and thus it can often be 6 months or longer before they return it. No other visa office does this as far as I know.
At some point they will send you a final letter that says "if we don't get your passport we will assume your application has been abandoned and close your file" or something of that sort. I've never gone through the ND passport process, but I've read some stories. I suspect you are right, in that a work permit and TRV is likely faster to process than the PR application, but I'd be speculating.
Apparently it is illegal to ship a passport outside India, yes. What people seem to do is have a person in India they trust carry it on their behalf and then submit it in India. I have never seen anyone claim it is unlawful to send a passport inside India by mail, but someone more familiar with Indian law would be better to answer this question definitively.