I think the frame should be aluminum.

OK, I can see that. We're not talking about an aficionado's bike.
Aluminum would work.

I also think the drivetrain should use an internal hub, less danger at the bike rack, cleaner too.

I agree IF it can be as cheap or cheaper than a cassette.

Finally I think there should be a dynamo hub.

Yes yes. An integrated light system (parallel to the top tube by the
headbadge?) would make it a great out-of-the-box college commuter.

A Surly could do it all, but if you're looking at a budget, I'm not sure how you beat a Breezer.

Any one of us could build up a Surly, I agree. My challenge is for
Schwinn (or another major bike manufacturer) to crank these road bikes
out by the thousands. Many of the parts would need to be generic in the
true Schwinn Varsity spirit. And as long as the parts stayed put and
worked acceptably, that's it. The bar-ends, brakes, cranks, pedals,
rims... all generic. Maybe Shimano could provide any non-generic parts
from their low-end road lines.

Could they put out a stable road bike at a sub-$600 price point? Or
even below $500?

What price point includes all the necessary servicable parts (spokes,
shifters) but EXCLUDES Wal-Bike build quality?