I don't find the arguments about "it's there in the Fade" very compelling -- I'm kind of with Sera on this one, who knows what it is real real and what's just messing with my head while physically in the Fade?
Of course, a big part of the motivation for the main quest is Cory trying to find a path to the City by way of the Fade, so, I'm not sure what to do with that, although that begs its own questions, like, why the need to sacrifice the Divine? The Orb/Anchor is clearly enough to get into the Fade physically, why the extra hocus-pocus?
I do agree with the cultural assimilation argument, though. There probably is some connection between the City and what happened to the elven powers. If that is not true, there are some very big questions begged about the origins of the races and their connection to the Maker.
I think Patrick Weekes's comment actually supports my argument! He likens the City to Heaven. That's exactly what I think as well. I don't want to veer into religion here, but I'll just say that I'd be very disappointed if the directions to Heaven were as simple as, "Go up, then go a bit higher, then turn right at the cloud shaped like a bunny, and there you are, the Pearly Gates!"
In sum, I'll freely admit to stubborn headcanon here. It would be such a waste for the City to be an actual location, like the neighborhood laundromat, or even the Taj Mahal. Since I don't cherish disappointment, I choose to ignore canon that disagrees with me and go on my happy way. 
(I make no claim to consistency. I had absolutely no problem with Sovngarde being an actual place in/above/beyond Skyrim. It completely fit within the Norse-ish mythos.)
Weekes likens it to Heaven as the Black City has similar connotations in the cult of the Old Gods as it does in the Andrastian faith, seat of the Old Gods, not because it actually IS Heaven. I mean Mount Olympus exists physically, but nobody has found the realm of the Greek gods in this world.
As for Sera, she's the last person I'd be consulting on matters of magic and religion
. I mean after Haven, I was afraid I was going to need to sedate her, or get her really really drunk. She doesn't want to believe, it complicates her world view. A nice little world in three dimensions where she can have fun. Get more complicated than that and she starts sailing down the river denial. I don't blame her, and it's a completely valid way of seeing things, but it doesn't make her the best consultant one stuff like this <G>.
Well, according to the Claw of Dumat note found in the Fade, Corypheus originally sacrificed all of his elven slaves/servants to open the Fade, because of there was a connection to the Beyond in their blood. The note makes sense given what we know, and the other notes found in the Fade also fit within the incidents they describe, so I think there is some validity to it. This being the case there may have been something about the Divine that made her an appropriate sacrifice beyond sending the Chantry into chaos. Especially since it wasn't a blood sacrifice, and for some reason the Orb was primed to give the Anchor to the Herald before the Divine was dead. I mean, usually the sacrifice has to, well, DIE, before this kind of thing is considered complete. I have a theory and some circumstantial evidence, but no hard facts, especially since we got some of our memories back, but not all, and the last set of memories doesn't gel exactly with what we saw at the beginning which was third person POV and not a memory at all. I figure we'll get some answers, hopefully sooner rather than later.
I completely understand headcanon though physical places can have spiritual properties. Look at Jerusalem... And Mount Olympus, Meggedo valley... Not that different than people who end up being seen as larger than life, really.
Not inconsistent, Creative and adaptive thought!