Your district sounds similar to mine and IMO works well. We are not a tiny district (4,000 total) but not huge either. We have three schools that each house pre-school through grade 2. Then we have one huge secondary elementary school that used to be two schools that shared the same building but they recently assigned one administrative team to the whole school. The students are still assigned to one side or the other for the time they are there, grades 3-5. Then we have one middle school for grades 6-8 and one 9-12 high school. We have three different schedules (primary, secondary, and then middle/high school).
I honestly think that the bus idea is asinine - would parents really not drive two more miles to school if they're driving already anyway? That's 5 minutes. I doubt many parents would use such a service and it sounds stupid from a logistical standpoint. It also sounds like drop off and pick up needs to be overhauled anyway. There is no reason for school traffic to not be civilized and orderly, someone just needs to put a logical plan in place that works and then be out there enforcing it until people learn the new system.
I think the segmentation works - it gives greater flexibility in placing students with the teachers who are a best fit for them and pools resources for SPED, PE, art, music, library, enrichment etc. that are most age appropriate. Having a whole building full of educators who are dedicated to teaching and administering to a certain age group is a wonderful thing. The environments at the schools my children go to (I have 4 in three different schools) are all great because they are geared towards their particular ages when they are there. The primary school has playground equipment, a cafeteria set up and library set up and books geared just to little kids. The secondary elementary school has different playground equipment and other things geared just for the 8-12 year old group, etc. There is a big difference between a 5 year old entering K and a 6th grader who has hit puberty - smaller grade groupings address that.
At the end of the day, I don't think your home values will decrease, you won't lose your sense of community, and the children will not be overly sheltered. There are benefits to both methods. I grew up in a Catholic school that was K-8 with one class per grade. There were definitely down sides to that. Our town went through a pretty big overhaul a few years ago where the 9th grade moved to high school, 6th to middle school, 3rd to secondary, and the secondary school placement (which half your child was in) went from geographic to random. People got all fired up over everything - lots of name calling, letters to the editor, the sky is falling talk and the changes went through anyway and we are all fine.
I know that change is hard, especially when it comes to our kids, but what your district is proposing is actually the norm in many places. I think someone should step up and address the bus and drop off issue but other than those, it sounds like a fine plan to me.