Some people would surely transfer at Pape to a fully grade-separated LRT...the problem is that a fully grade-separated light rail DRL would be virtually the same price as an actual subway line, only with less capacity (and that capacity would be needed).
The DRL becomes powerful and extremely useful when extended up Don Mills (the relative benefit is lower in the west because the Spadina line has already relieved Yonge on that side of the city); it'd take people off the whole length of Yonge, not just people transferring at Bloor, it'd take people off Danforth, it'd take people off downtown streetcar lines, it'd take people off the YUS loop (like GO users at Union using YUS in the reverse direction). YUS loop stops like Dundas/Queen/King are still going to be destinations for many DRL/Don Mills riders, but they can take the subway back north a stop or three at Union. There is a risk that PATH could be overwhelmed, but improving the reliability and speed of streetcar line like Queen would enable many DRL riders to get off at Queen and take the streetcar west into the core. The DRL gives people many more options, and when useful lines all connect with other in useful places, people can start transferring all over the place and overall ridership will soar.