I'd agree with a lot of this post, but I must take issue with this last part. The Ottomans would most defiantly surpass any European country with the exception of Russia in an world were the Ottoman survives (with pre-ww1 borders it looks like, with a few differences).
The Ottomans would still be a rising power for a few decades, with many countries still ahead of it economically and such. By the time the Ottomans have achieved that 3rd position, which is entirely possible, there is no guarantee that they will keep it for long. Japan will be rapidly rising throughout the 60's/70's, and will probably overtake the Ottomans before the collapse of the Soviet Union (Assuming as few butterflies as possible of course). And of course, China and India have a great "Natural Potential" if you will, then the Ottomans.
If you wanted to see the Ottomans in possibly their most positive survival scenario, you would have to use a POD before or during the Russo-Turkish war of 1877. This would leave a Ottoman empire in a much better position then one with a POD from WW1. The Ottomans would industrialize (not to a great extent, but much greater then OTL, imagine a kind of Italian style industrialization), which would have a number of advantages, not least having some capital for indigenous Ottoman development of their oil reserves. They would also have a much higher population, as they have a good chance of restoring their control over Egypt in the 1880's, leaving them with a much greater "natural potential" in the 20th century then the other scenario. Here, it is entirely possible to see the Ottomans as the 3rd or 2nd power for more then a few fleeting years.
Anyway, actually addressing the first poster, it seems to me that Arab nationalisms biggest failure was the '67 war. It mostly discredited the ideology in the eyes of the Arabs themselves, and left a void ideologically in the Middle East. To some extent, Islamism is filling that, but it doesn't exactly carry the spirit of optimism that pan-Arabism did. To answer the question, another one has to be asked. If Arab nationalism didn't emerge, what would have took its place?