I doubt Balague would have slagged off Rafa, he thinks the sun shines out of his arse, they're close and he's even written a book on him. His Valencia team werent all out attack or anything but I think they played some sensational, controlled football with Baraja, Aimar, Vicente, Rufete and others. I remember watching them rip Liverpool apart twice, it wouldnt surprise me if that stuck in their mind and helped them go for him.
He's not great in the market but theres plenty of good, Torres and Alonso like you mention, Mascherano, Reina is one of the best goalies around, Arbeloa was 2.5m, signed as a nobody and is now a Real Madrid and Spain regular, Agger is very good, Benayoun, Skrtel, Sissoko was outstanding for them till that eye injury etc etc. And despite all the money he's spent theyve recouped a hell of a lot too, and he's only been allowed to spend what he's brought in on sales for 18months now, the owners are ruining that club.
He's far from perfect but I think he's the best candidate out there.