I agree that Deansgate and Oxford Road are too close together. The problem is that everything is hemmed in, and immediately west of Deansgate you have the first of the various flat junctions that are the source of a lot conflicts.
I believe the Deansgate station buildings are listed and possibly the station buildings at Oxford Road. So the whole lot is set in the way it was when built, with very little opportunity to redevelop unless you just say "OK they maybe listed, but they are in the way and a proper 21st century railway is needed with capacity to meet current and future demands so they have to go." You then have the old rail infrastructure into Central, which is now used by the trams.
The Ordsal chord actually made things worse.
Put simply its a mess which picking around the edges of will not sort out, it will just move the pinch points.
Seeing as this is speculative discussion, the ideal solution:
A proper 4/5 track railway from west of Deansgate all the way through to Piccadilly, Deansgate station completely redeveloped and extended east to handle longer trains. Oxford Road closes. The viaducts carrying the trams are demolished to create space and a new purpose built one is constructed specifically for trams, which can use tramway gradients and curves to provide easy interchange at the redeveloped Deansgate, which then has 4/5 platforms. Then 2 more through platforms at Piccadilly to the south, with 13/14 also moved south to create a larger 13/14 platform area. The area over the taxi rank and the old 13/14 area built over to create some westbound facing bays for terminating services, or alternatively use the old Mayfield site for some westbound bays. Possibly create a Deansgate - Picc tram link parallel to the railway, with Oxford Road and and one or more intermediate stops on the way to Pic, merging with the tracks that emerge from under Piccadilly **Edit**: Provide a grade separated junction at the throat of Piccadilly to allow services emerging from Castlefield to join the required route with out conflict
Reconstruct the Ordsal chord Picc to Vic track to be grade separated, the 'inner' leg is fine, but the outer one would then be at current tram level over the junctions and fly over all the other lines to 'land' into Platform 4 at Vic.
Tell all the NIMBYists and the 'cant do that' brigade that its needed to support the wider development of the North of England, and its happening. Ensure that these same people cant bog it down in legal challenges, by a change in the law if need be to exclude essential infrastructure projects from a lot of red tape and restrictions.
How much would all this cost, I have no idea, but obviously a massive number.
Would any goverment have the foresight and conviction to carry it through, very doubtfull
However the end result would allow the services that are needed to be run in more reliable way with space for additional services. A 50 year plus solution.