Sounds like cool stuff, along the lines of structure editing!

The question is not whether it can work, but whether it works better than an edit tool using textual search/replace blocks. I'm curious what you see as the advantage of this approach? One thing that comes to mind is that having a cursor provides some natural integration with LSP signature help

Yes agentic loop with diagnostic feedback is quite powerful. I'd love to have more controllable structured decode from the big llm providers to skip some sources of needing to loop - something like https://github.com/microsoft/aici