I agree with everything you describe in this post.
I limit myself to explaining (as I see it) the reasons why the ATP Ranking designated Connors as number one.
1) some tournaments were close to slams (Memphis was one of them)
2) Memphis was considered from ranking > Rome (highest prize money but also seeding, out of 7-8 of the top ten)
3) Connors won 10 tournaments and Borg 7 in 1978
Basically, if you look at the results without the two special events in Vegas and Boca Raton we understand why.
We can obviously disagree but I think it is useful to understand why.
Yes, to me the dispute isn't why Connors topped the computer ranking (I understand why he did), or to debate whether or not the ranking system was flawed. To me the debate is who was the best player that year regardless of the ranking system in place, and I think that was definitely Borg, and the ITF and most publications and tennis writers seemed to agree. In 1998 with IMO a better and more logical computer ranking system than in 1974, I earlier argued that I thought Rafter was the player of the year, albeit very narrowly, over the computer year end no. 1 Sampras.
Regarding Memphis vs. Rome, when it comes to comparing tournaments at that level which are both highly regarded, and are not really that far apart from each other in terms of overall importance and status, I personally think the standard of opponents faced and beaten, overrides the tournament designation.
Borg beat Ycaza, Deblicker, Tanner and then far more notably Solomon, Dibbs, and Panatta to win Rome, so 6 matches with 3 very high quality opponents with plenty of clay court pedigree in the last 3 rounds.
Connors beat Stockton (who won the 1st set and then retired injured during the 2nd set), Fibak, Cox, Higueras and Gullikson to win Memphis, so 5 matches facing opponents nowhere near as strong in comparison (especially relative to the surface) in the last 3 rounds.
With a 64 player draw and the requirement to win 6 matches in 1 week, with a best of 5 set semi-final and final and still a strong draw, the Italian Open was a brutally difficult tournament to win from a physical perspective as well, and far tougher in that department than Memphis with a 32 player draw and best of 3 set matches throughout, or any of the majors over 2 weeks for that matter. Also facing Panatta in a final in Rome with him backed by a 'passionate' crowd', is on a different level to facing Gullikson in a final in Memphis. So therefore I personally rate Borg's Italian Open win more highly, though I think that Connors' Memphis title was still very significant.
However when it comes to comparing the US Open to Rome for example, and it is definitely possible in any era for players to face and come through tougher draws in Rome than New York, then I think that the prestige and status of the tournament (i.e. the stakes at the US Open match by match are just so much higher) definitely overrides the quality of opponents faced.
In terms of money for example, Borg earned considerably greater prize money after winning the title in Dallas in 1976, than Connors did after winning the title that year in Philly, but I think that Connors' Philly title should carry (even) more weight and be valued more highly that year, due to the strong field and opponents faced.
I've seen figures regarding the total prize money earned by Evert and Navratilova on the women's side in 1978, but not earned by Borg and Connors on the men's side that year. I assume that Borg overall, helped by his huge winners' cheque after winning the Pepsi Grand Slam and also much stronger record in invitational events, earned greater prize money overall than Connors that year, which if he did, would be another big factor in his favour re who was the player of the year.