Nice essay, Steve. I think the last sentence is perhaps the most relevant to our current debate. I believe it is fair to say that both natural selection and punctuated equilibrium theories have their place. Both are mechanisms for evolutionary change, one gradual, and one 'rapid' (in the geological sense). They are not mutually exclusive.
I don't recall much about regulatory genes, but neoteny (and it's cousin, paedomorphisis) makes sense as a mechanism for rapid change. As for cometary impact (and other sudden drastic environmental shifts), this would account for a rapid reduction in species diversity, which would then provide a wealth of unfilled niches in the environment. Since competition for resources in these niches would be reduced or eliminated, organisms would move in as fast as they could, using either existing forms, or modifications from mutations, etc. The development of new adaptations, and thus eventually new organisms, might happen more rapidly in such a scenario, but it would still be natural selection at work after the environmental shift.
Bartman- they don't decide to mutate or not. They either live to reproduce, or die. If they happen to mutate (or other forms of variation) and that happenstance makes them more likely to reproduce, then said mutation will become more common, and the organisms and offspring may survive whatever occurs.
As Tad said, almost all mutation is deleterious (bad:-)). It's not 50/50. But with enough offspring, hopefully a few will survive and reproduce, regardless of mutation or not. Well said, Tad, about how mutations in DNA cause physical changes to the body.