Why would it be built grade-separated LRT? If you're going to build it fully grade separated, why don't go for subway, which happens to be less expensive and has the possibility of higher capacity if it's needed.
And I don't think we screwed up the first part. The Downsview-STC corridor is actually a pretty huge in terms of people moving along it. It's got the framework for tonnes of people going across it in all directions at all times. Sheppard West is actually a pretty important subway extension if you ask me, and it'll only be more important as the YUS gets longer. It'll allow people on the Spadina line to quickly access NYCC, the Yonge line and eastern North York and Scarborough. It'll also serve the Downsview community and Bathurst-Sheppard. Just connecting the Spadina Line with Yonge and NYCC is good enough justification for me to get it built.
I have two points about ridership. First, 10 k pphpd isn't the magical subway number. And whatever LRT's max capacity is, is not the magical number for LRT either. If you're getting a LRT that you know will be getting 15k pphpd, I'm thinking that building it as a subway isn't a terrible idea. And if you get a subway that's gonna have 9k pphpd, that might warrant subway, say if it's a short corridor, or if there's a lot of development opportunity.
Second, I doubt that Sheppard's 10 year predictions are still under 10k pphpd (and I mean if a
real study was done.) The corridor's got way more potential than that.
And as for cost... Don Mills-STC would definitely not be $2.5 billion. I'd say that the upper limit is $2 billion, with $2.5 billion being the scenario when they discover there's a volcano under Agincourt. If they built the subway intelligently (aka. no cathedral stations or underground bus bays,) I'd expect something closer to $1.5-1.7 billion. Sheppard West would be less than a billion, again, negating any underground lava vents we need to doge around