San Francisco has a few areas with the "sidewalk level bike lanes", especially near the waterfront from the Embarcadero towards The Marina. I've walked in there as a pedestrian and have ridden a bike in that area, and honestly the area has wide-enough sidewalks that that style of bike lane isn't too bad for pedestrians or cyclists, at least in my opinion. I imagine what's envisioned for Market Street will end up being similar, though the sidewalk along the sections of Market I see regularly (around the Powell Street Bart) is narrower than in the waterfront areas.

But I tend to agree with you overall: with (most^) cars taken out of the equation, a street level bike lane is probably better for everyone.

^ I still see people mistakenly turning on to Market sometimes.