I sporadically contribute to this forum, but always leave in frustration. I think rusmeister is right. This isn't really a good venue to methodically work our way back to first principles, and slowly build carefully constructed arguments that all parties will find compelling. So consequently, there are a lot of circular debates which go back to essential differences in definitions of terms and principles from which subsequent conclusions are drawn. I'm not going to try to contribute that much, and am going to keep myself from getting into arguments. Stanley has always been better at that, and maintains his equilibrium better than I.
That being said, with regard to the Congregation's statements regarding the Catholic definition of "Church" - I would encourage people to read it, rather than popular reports about what it contains. I think, in the first place, it is an attempt to create internal (within the Catholic Church) clarification regarding the definition of the term "Church." This is the right of any organization that expects to create some common vision within its own community. Secondly, it is an assistance to dialogue with non-Catholic denominations, because they understand the other party's definition of a critical term. That doesn't mean they have to agree with it, but they know what the other person means by a particular word. Thirdly, I think non-Catholic Christians (I'm not talking about Anglicans, Orthodox, Copts, etc. - this will already be a familiar concept to them) might consider the implication of the definition. If you look at the document, you realize it's an internal instruction for Catholic theologians who are attempting to understand a legitimate construct for ecumenical dialogue. They have been asking questions of the Congregation regarding what sense they should consider non-Catholic religious communities to be "churches," or "members of the Church." This document really just summarizes previous teaching on the subject. What it reminds Catholic theologians is that the Catholic Church draws its "churchitude" from Christ, the unbroken succession of the mission, sacerdotal, priestly, and teaching authority from the original Apostles which Christ commissioned to go out into the world, and the Sacraments which are the normal means through which Christ unites himself to his people. In other words, it's not just a "Church" because of personal holiness, belief, common intention, etc. God makes the Church, rather than man. That's really the core concept in the self-identity of the Catholic Church. The document also defines how different communities are united to the entity called the Catholic Church. The document spends just as much, if not more, time extolling their virtues and effects, as detailing the means in which these communities depart from the Catholic definition of "Church."
I don't think it's productive to try to argue for or against the document - it's just the Church reminding its theologians of its common definition of a term. Obviously, Evangelicals wouldn't agree that Apostolic succession was essential to the term, nor that a transubstantiated Eucharist was the essential life blood of their existence. Nor would the Orthodox be expected to define unity with the Roman Bishop an essential element of their full participation in the Body of Christ. The Catholic Church doesn't expect anybody other than Catholics to agree with its use of the term. It is helpful, however, to state clearly its position, and that's what Cardinal Levada's responses attempt to achieve. It is not a denial of the sincerity of the belief of non-Catholics, a statement about their future disposition in the economy of salvation, or even a comparison of the nature of their personal relationship with Christ in comparison to that of Catholics.
I have attached a link to the actual document, for those who care to read it. It's quite short.
