Airshowfan, nice post, I would be interested to read your book.
I find Game Theory particularly interesting as it can show good mathematical demonstrations of how behaviours are beneficial. Think the only problem with tit-for-tat is that it assumes an individual will remember previous encounters with 100% accuracy, which is obviously unlikely.
Level 3 altruism, as you call it, I like your explanation a lot, and I agree with you, but I would still hesitate to call it "true" altruism, in the sense that it carries no selective advantage to be altruistic, or rather to be inclined to be altruistic in this manner, I think that the development of a Jimminy cricket must have a positive effect on inclusive fitness. I think that it pays to care, in other words!

What a lot of the commentators don't seem to realize is that before the Potsdam Declaration, and the end of Russia's neutrality towards Japan, the Japanese had been seeking Soviet mediation in ending the war. The allies responded with Potsdam, which was unacceptable to the Japanese mainly as it would not allow the Emperor to retain his position.
It should also be noted that the Japanese always knew they could not defeat and invade the US, they sought instead to gain quick military victories so they could seek an end to the war under terms favourable to Japan (i.e. which would let her hold on to her new SE Asian territories). This would also be unacceptable to the US as she sought to acquire more influence in resource-rich SE Asia also.
In short, I think the only reason for rejecting Japanese approaches for an end to the war, presenting them with unconditional surrender terms which they would not accept, was an attempt to justify the use of atomic weapons as a demonstration to the Soviets. Much as one of the objectives in destroying Dresden had been to show the advancing Russians the might of allied airpower.
In both cases killing thousands of non-combatants.
Don't get me wrong, the behaviour of both the Japanese and the Nazis in the war was absolutely abhorrent, but that does not justify the INTENTIONAL killing of civilians. In my view the justification that it saved more lives than it cost is absolute nonsense- the allies could have ended the war under terms more favourable to the Japanese. Even if they couldn't, and an invasion was necessary, we are still talking about purposely slaughtering non-combatants now, aren't we?
My two cents.