> Neither LC or TMs are "natural ways of thought"
I agree. I think it's like Moravec's paradox: we tend to forget how hard it was to first grasp the concepts of programming, and go on to treat whatever's most familar as being "obvious", even if it's not.
Still, there are a few specific points I take issue with:
> Lambda Calculus, Turing Machines, etc. are no different in this regard. One has its steps realized in reduction and substitution rules, the other has its steps realized in movements of the head and manipulations of the tape.
There is a very big difference between TMs and LC in this regard: each step of a TM takes a constant amount of resources (time, energy, whatever https://en.wikipedia.org/wiki/Blum_axioms ); whilst a single beta-reduction "step" in LC may require an arbitrary amount of work (depending on how many times a variable occurs, whether we need to rename to avoid name capture, etc.). My (perhaps naive) assumption is that the work required for beta-reduction is only bounded by the busy beaver function.
This is probably why most computational complexity research sticks with machine models (operational semantics) like TMs. Still, there are alternative approaches which are very natural for LC-style programming, like "cost semantics" (essentially an alternative set of reduction rules for LC, which evaluate a program into its the algorithmic complexity, rather than into its return value).
> Turns out that TMs won out not only because they admit an easy physical implementation, but also because they're compositional.
I'd hesitate to call TMs compositional. As I wrote at https://cstheory.stackexchange.com/questions/21705/what-is-t... TMs can't really be re-used. Consider a TM (or program for a universal TM) for adding two numbers: it's hard to actually use that as part of any other TM/program, since it may clobber the rest of the tape, we need to setup the contents of the tape, state and read-head just right before invoking it, and clean up afterwards, those may require that we shuttle the rest of the tape contents along to make room, and so on. In contrast, LC lives in an abstract world where subexpressions can expand and contract without bumping into each other, terms can be duplicated and rearranged without having to drag them across the intermediate symbols, etc.