1 - Yeah, sexual content is a problem to a lot of people. It's already part of the medium, though. I remember how surprised I got when I saw a lot of friends and people I knew saying things like "I don't to read VNs with sexual content" or "It has a good story but I dropped because of the sexual content", I never saw it as a big deal but I can understand them. I believe the best they could do is start making VNs with the option to able/disable h-scenes so everyone could be happy. Also yeah, the young ones wouldn't be able to appreciate the medium with this strong sexual content presence, that's important too.
Though it's a bit different if the sexual content is dark, people are too sensitive nowadays.
2 - Doesn't really matter. If it's good, it's good. VNs should keep their japanese setting since, well, it's their culture after all (Unless a writer wants to use a different setting, every writer should write about what they want to write). Now OELVNs can be different, yes. But if you think they should change the "standard" to appeal to the general western audience, then shouldn't they also change everything else? Like art, soundtrack, narrative and so on. If someone is tired or disinterested in japanese culture and "standards", then this person wouldn't like VNs in the first place. In the end it becomes something completely different, maybe a new medium? And that wouldn't help VNs becoming popular here.
It should be noted that I'm refering to people who don't really have any contact with japanese culture, few people that dislike anime would want to read VNs, for example. People that only wants to complain how their VNs almost always happens with high school students or things like that shouldn't be considered (Because they are already part of the ones who read/play VNs, duh).
3 - So one day I wrote a review about a certain Visual Novel, and a friend of mine came and said "I didn't read it because it's too big". An other person I know once said: "I don't have the patience or time to sit through 10 hours of text with nothing happening", and an other friend of mine once said: "There's no way a bunch of text can be exciting".
Our society is growing more and more impatient, years ago people would be willing to sit through 12 episodes of an anime just to see the big twist and the story finally "starting" (e.g. Steins;Gate). Nowadays if an anime doesn't explain everything in the first episode, they drop it. This is the mentality a big part of the general audience have. Then you have VNs, which has several hours of text and sometimes dozens of hours of text, what do you think would happen?
People don't even pay attention to what they are reading/watching, let alone interpret or reflect over it. To cater to this audience would meaning losing it's identity as a "Visual Novel" the way we know it, would the great popularity be worth it? I strongly don't think so.
VNs with gameplay would help, though. I'd say the gameplay would be a way to entertain someone who is not willing to read hours and hours of text.
In other words, it works because it's the way it is. I don't think they should sacrifice what I call the "cultural roots" so it met the "standards" of the west, I think this line of thought is pretty dangerous too. Though it's about a completely different theme, Sakura Quest anime dealt with this discussion about "making a small culture big so people from other places could enjoy it too".
Visual Novels are like birds, they can fly high, there's a lot of different types and even some types we don't even know, sometimes they fly together in the same direction, they can be big or small, but more importantly: They are free. Let them be free, it's not worth to trap it in a cage just so you can show it's beauty to other people. There are those who can love birds, and those who can't, it's simple as that.