The only problem I have with light rail converts/extenstions is that they cannot be used by mainline trains, so small systems like this are rather non-standard. I like the plans in general though.
If they plan to keep the Network Rail signalling and to use tram-trains and not trams then the line can remain part of the National Rail network.
I think it's unfortunate that the DfT won't allow any tram-trains until the Sheffield trial has been undertaken. They could easily be used to provide services on branches with either no passenger service or a limited passenger service then if patronage grows they could be switched for larger ordinary trains, allowing a cascade to a similar line.
For instance, Stockport to Denton to Victoria gets 2 tram-trains per hour. Then if usage grows enough they get larger ordinary trains instead, leaving the tram-trains to provide a service on the Northwich to Sandbach Crewe line, which has proposals for re-opening (currently freight and diversions only) but aren't as an advanced stage as a proper service on the Denton line.
An extension of the latter service to beyond Altrincham would also provide options for a direct service between a heavy rail line and a light rail line without a change of vehicle - a key selling point of a tram-train.
The 7 321/4s would be useful elsewhere, but would only be used till 2018 or so on GN.
By which time the Leeds area will be able to operate more electric local services as a result of additional electrification.