[iamhenry]

I've tried to tackle this very same problem. I've been doing a lot of UX work for a native Mac OS, which would allow you to design similar to PS but use a preview using a Webkit engine.

You can check out the mock I've been working on via my Dribbble site (http://cl.ly/HOrs) and the larger version is attached below that shot as well. If anyone is interested we should definitely sync up and tackle this problem.

I think you you have here is off to a good start but is definitely too basic if you are intending it to take over PS. Would be great for simple prototyping sites though.