In Illustrator, all text and objects appear selected and grouped when the item is open, and then when ungrouped, text is not editable on the path - you can pull the text all over the place in single letters but its not possible to re-word it.
True. That was just the simplest way to implement it. As you know placement of each letter in SVG is affected by kerning (both horizontal and vertical) and letterspacing, plus the text can be put on path. This all can be done in Postscript, but we just don't have a spare Postscript expert for implementing this. Showing each letter separately is much simpler to implement, and it's legal Postscript. Until recently the only way was to convert text to shapes; now you don't need to, but the text is broken into glyphs instead.
In fact, if you have a font change in the middle of the line, Postscript will have this line broken into separate objects anyway - that's just a limitation of the language. So I don't think that our "overdoing" it and breaking it at each chanracter is really that bad.
Once I'd saved in Illustrator I couldnt re-open the file in Inkscape at all.
Saved as SVG? That's a bug. Please submit the bad file to the bug tracker.