I had forgotten about the Gap rumour. I can't see the city being too concerned about building heights at that location, but I also can't see how any additional parking could be included for a new tower. It also seems like a no-brainer location for a hotel operator (I could see a W at Yonge/Dundas, easily). Having a hotel on the lower floors would also make it easier to incorporate space for signage and advertising facing Dundas Square.
If the Gap did go high-rise I actually wouldn't be opposed to them dismantling the facade and reincoporating it into the base of the new building. As it is the sidewalks on the NW corner are so narrow that I'd be willing to trade a little bit of historical authenticity for an extra few feet of sidewalk space.
And really, if the stairs to the subway could be relocated inside a new building that would be a big help, too. I like the urbanity of the sidewalk subway entrances but I find they're really obtrusive at times, and they're always a mess in the winters.