What about running a subway system with OTrain type vehicles along the current GO corridors for Toronto travel only?
The GO network would be completely 905 service and all trains GO train stops once entering the city {mostly the first station} be for drop off and anyone from GO wanting to transfer onto the Toronto system does so there and after that everything is a Union express.
As an example the only GO train stations in the city of Toronto would be Miminco, Etobicko North, York U, Agincourt, Guilwood, Oriole, Kipling, and, of course Union. Toronto could electrify the system {except the Barrie line which really doesn't serve any of Toronto as it just runs parallel to Spadina} and run OTrain type trains with frequency of about every 8 minutes all day and 6 minutes in rush hour. When the lines begin to merge the closer you get to Union the better the service will be.
Most of the system already has complete grade separation so eventually all segment could be grade separated and it could be run automatically. This would nearly triple the size of the Toronto subway system at a small fraction of the cost. The entire system could be up and running for the $2 billion to be spent on Finch and Sheppard.
This is EXACTLY what Sao Paulo is doing with some of it's old commuter lines. They are electrifying the system, bringing service up to subway frequency, and adding more stations within the inner city itself and they are becoming part of the standard Metro system.
But what's the point of having the TTC run a completely separate system, when GO could accomplish the exact same thing, for less of a cost, using the same fleet of vehicles and a unified fare system? Your entire idea is predicated on the idea that the TTC is and always should be a completely separate entity with it's own fare structure, and that's simply not going to be the case.
The O-Train doesn't really have that big of a capacity. Even during rush hour, it carries a fraction of what the Transitway does. I'd much rather see S-Bahn style EMUs running along GO corridors than Bombardier Talent-like vehicles.
And besides, the basic system that you're describing (a separate system for Toronto only) is already in my GO REX scheme, as the Lakeshore Toronto and Pearson-Unionville GO REXes. They only extend just beyond the borders of the city of Toronto, and essentially provide subway-level service for Toronto, because they overlay on top of longer, more regional lines. The only difference is that they're running the same vehicles as the rest of the GO REX system, and they function on the same integrated fare system that the rest of the GTHA would.
So I really don't think there's a need for the TTC to run those 'overlapping' GO REX lines, in whatever form they may take. GO is perfectly capable of handling them, given the right fare structure and station locations.
Just look at the Berlin S-Bahn (
http://www.noordinaryhomestead.com/wp-content/uploads/2012/08/berlin_s_u-bahn-map.jpg), there are quite a few S-Bahn routes that have single digit numbers that run way out into the suburbs, with double digit numbers that run a parallel route through the core, and then either terminate well before the end of the line, or form a small spur and then terminate. This results in lower frequencies the further you get out, but subway level service through most of Berlin proper, because of the overlapping of multiple routes.
The entire system (which includes the U-Bahn) is under a single fare system. If you're in Berlin proper, it makes little difference whether you take the S-Bahn or the U-Bahn to get your destination, because they both have similar frequencies and the same fare. It's just a matter of which is more convenient for your trip pattern. It's this type of system that I want for Toronto and the GTHA, not some fragmented system where you have 2 different service providers operating overlapping routes on the same corridor, just because 1 is for the City and one is for the surrounding suburbs. To me, that's archaic.