Actually Player Has Huge Advantage
But take this to the edge where there are only 10/A cards left, and now it becomes pure luck as to who gets what, with, as you said, that extra .5 payoff being the only edge we see, which appears to be worse than the previous case where the dealer could get a stiff and break.
gorilla player,
In the above selection from your post, you seem to be missing some vital points that lead to the player having a HUGE advantage over the dealer in this situation.
Consider playing BJ with an infinite deck consisting of nothing but X's and A's with four X's for every Ace, to keep the usual 4:1 ratio of X:A. Here, the odds of receiving an A-X BJ are (1/5)*(4/5)=4/25, and the odds of an X-A BJ are (4/5)*(1/5)=4/25, so the odds of being dealt a BJ are 2*4/25 = 8/25 = 32%. By similar reasoning, you'll start with A-A (1/5)^2=1/25 = 4% of the time, and X-X (4/5)^2=16/25 = 64% of the time.
The dealer has two possible upcards: A or X. Which would you rather see? The answer is not intuitively obvious. Let's consider each in turn.
Now 1/5 of the time the dealer will have an A up... do you want even money or insurance? Can you say "Hell, yes!"? After all, the dealer has an 80% chance of a BJ. However, you should be hoping assiduously that you lose the insurance bet, because in that situation you'll clean up! If he doesn't have a BJ, then you know that he has an Ace in the hole, for a soft 12. What's the dealer's only hope of NOT busting? That's right: he has to draw five more Aces before drawing two X's (or SIX more Aces, if the table is H17... this is one situation where H17 is better than S17 for the player). Thus, if the dealer shows an Ace and you lose the insurance bet, you'll split 'til the cows come home. Here, if RSA is allowed, that's just icing on the cake! Therefore, you (almost) can't lose against the dealer's mighty Ace!
The other 4/5 of the time the dealer will show an X. Now 20% of the time he'll have an Ace in the hole: you'll push 32% of these hands with your own BJ and lose the other 68%.
If he doesn't have a BJ, you know he has a pat 20, so how should you play your hand? Again, 32% of the time you'll have a BJ, so take your 3:2. (If you DD, you'll win 80% of the time and lose 20%, so 3:2 is better. However, if BJ pays 6:5, EV(DD)=EV(Stand); if BJ pays 1:1, then DD).
Against his pat 20, 4% of the time you'll have A-A, so then you'll split and pray that RSA is allowed, since you know 12 is a loser.
Finally, 68% of the time you'll be facing his pat 20 with a pat 20 of your own, so what do you do then? That's right: you split 'em! (Just out of curiousity, what is the index for splitting 10's vs. a 10 in a normal BJ game?) Here though, you have nothing to lose: each X will either get an A (20% of the time) or another X, which you will continue to split as long as possible. Every one of your resulting hands will either win or push: thus, you can't lose when splitting X's vs. his pat 20!
In the end, the only dealer hand that will cost you much money is the X up BJ vs. your non-BJ. The odds of this are (4/25)*(1-8/25)=10.88%, or roughly 1 hand in 9. The only other hands that you will lose are when you split A's and receive another A that you cannot split again (either because RSA is not allowed or you've already split to the maximum allowed number of hands), and the dealer has either a pat 20 or he gets the miracle five or six A's draw to his soft 12. However, you get A-A only 4% of the time, so these hands will not contribute very much to the overall picture.
All the other hands (85+%) will be non-losers for you, and most of them will in fact be big winners due to the multiple splits.
In the end, even if BJ's pay even money, I'd play this game all day long!
Dog Hand