> You can authenticate outside of the insecure channel. There is a real world outside of the internet.
Exactly, and you can look at how much of a failure PGP has been to see how successful that approach is.
> Why is it that, in practice, the only certificates an end user's "CA" can sign are the end user's server certificates?
CAs can sign any X.509 certificate. They only authenticate domain control or business ownership (via “EV”), though. CA certs also aren’t only used for TLS. You can get a code signing cert from a CA for instance.
You can write a very long list of perfectly valid complaints about the CA system. However it is undeniably the most successful PKI ever implemented, and not just by a little bit.
This isn’t because CAs are bad at what they do. It’s because there is absolutely no elegant solution to that problem. If you want to authenticate identity manually, then I wish you luck finding one or two other people to join you. If you want to securely communicate with people you don’t know personally, or who don’t know how to/can’t be bothered to maintain their own set of private keys, then you’re going to need to establish trust via a 3rd party authority.