I see your point, and agree with you on the arms treaties. However, the economic situation of the eastern bloc albeit bad and deteriorating, in my mind does not neccaserily imply the fall of the berlin wall and certainly not the USSR itself entirely. My argument for this would be nations such as Cuba or North Korea, countries that did not reform their political systems after the USSR fell despite intense economic and humanitarian pressure. Evidently, the eastern bloc if it continued to deteriorate would have faced serious and grave economic issues with shortage of goods around the nation. However, in terms of pure survival, I think it could of survived without reform perhaps longer than is commonly accepted.
The Eastern Block was facing a deteriorating economy because of bad policies chosen in the late 60s. It is entirely possible that the various east block states could have chosen to keep digging, but it's also quite possible for those that aren't Yugoslavia to stabilize themselves in the late 80s and early 90s. The real problem in eastern europe was that they'd borrowed too heavily in anticipation of an achieving export-fed growth, but bad economic conditions in the west meant that there was no export market for the increased eastern production. So instead the eastern block experienced a period of debt-fueled consumption, then suffered through a long period of austerity to pay off their debts. And just as those austerity programs were starting to pay off, the Soviet Union implodes and takes the satellite states with it.
Also, the often contradictory and always too-rapid changes ordered by Moscow under Gorbachev took a political and economic toll on the satellites during a period when austerity had brought Party credibility across the region to a low point.
So without Gorbachev, and if instead a more slow-and-steady reformer held power (which I think must be the case - things were bad enough that almost everyone with any power in the USSR was a "reformist", though of course, they might have contradictory ideas for how to reform things), I suspect that most of the Eastern Block would have stabilized and returned to reasonable levels of growth. I am fairly sure that the USSR would need to intervene in at least Yugoslavia, perhaps also a couple other states (ironically, the main voice for intervention is likely to come from the US, which wants a stable Europe and to not have to intervene in any of these areas itself). Though I suspect a "Poland" solution, where the Soviets make clear their support for the regime in a state and let the army and secret services of that state crack down would be sufficient for most crises.
Of course, as the choices of the 60s illustrate, the satellites, and indeed the Soviet Union itself are very vulnerable to poor choices, so getting through the initial crisis isn't the end of things by any means.
In terms of foreign policy, I think under any leader some form of arms control treaty would have been signed. As you say, the threat of military build up and the pressure this was causing was purely too great. In relation to the Gulf war, I think its quite a stretch to try and assume what would happen there. Would Saddam have dared to invade with strong condemnations from both world superpowers? Or as you say would Kuwait be an Iraqi province with Saddam as a key Moscow ally. I'm inclined to think Kuwait would still have had to be given up by the Iraqi's, if for no other reason than that would mean just under 50% of world oil supplies under Soviet direct control or influence.
You must remember, the USSR was VERY prickly about states who tried to upset the officially agreed borders, since that would endanger their own territorial gains after WW2. Also, the Soviets really didn't like Saddam, and only massively backed him because they wanted to see the Iranians spread Islamic revolution even less.
Further, in OTL, Saddam never consulted the Soviets about Kuwait. This led to some shock and consternation among the Soviet diplomatic community as he suddenly invades the country and expects them to back him. This was a big factor in why the Soviets instead backed the US intervention.
On the other hand, the Soviets were also allied with Iraq, and the Soviets were pretty faithful to their allies, so I don't see them joining in on Desert Storm. More likely, a less sickly Soviet Union condemns the Iraqi invasion, give their sanction in the UN for a force to liberate Kuwait and work frantically to persuade Saddam to withdraw from Kuwait before the hammer falls. Most likely, Saddam would not back down, the US-led coalition invades, but this time the Soviets are there making clear that if the US makes any serious incursions into Iraq itself, they will defend their ally.
So not too much change from OTL. But things could change very radically in the post-war period. It is easy to imagine Iraq being backed into being a full Soviet satellite by the US, which could lead to a much more Socialist Iraq developing by the end of the 90s.
Also, the continuance of the Soviets as a major power will mean that there is another possible protector for the states of the Persian Gulf, and though I imagine the US will have a heavy advantage, the Gulf monarchies may still flirt with the Soviets to extract concessions from the Americans.
But the increasingly obvious inability of the Soviet military-industrial complex to compete with western technological advances, especially after the Reagan buildup, will continue to build pressure for more radical reform, and it could well be that neither would remain in power by 1990.
I doubt this. Remember that the US never completed the Reagan build-up, even when they thought the Soviets were still an enemy that required a large US military to manage. There's no doubt that the US could choose to bear much heavier military costs, but the breathtaking amounts of cash required to get a decisive advantage over the Soviets would require sacrifices that I don't see being made if the Soviets don't force them to be made. (The Reagan build up was debt funded, even at one of the coldest points in the cold war, political forces pushing the US to cut taxes were stronger than the forces pushing them to gain a long-term military advantage.) And the Soviets, having no illusions about US military capability or their heavily strained resources, are extremely unlikely to push the US too hard. As for Western technological advancements, while during the 80s the US was perhaps gaining on the Soviets, between 1945 and 1980, the Soviets had been gaining on the US and quickly. Was this Western advantage sustainable? One can argue that one both ways. But what is for sure is that the relative advantage that the US held over Stalin's Soviet Union or Khrushchev's Soviet Union would never again be achieved. And as you may note, the US didn't win the Cold War when Stalin was in power or when Khrushchev was in power.
On balance, I see the cold war as continuing much as it had - the Soviets constantly gaining in capacity to compete in more theatres (so for example, a surviving Soviet Union would likely have more aircraft carriers, allowing it more options in 3rd world interventions), but the US maintaining a large advantage over the Soviets (so if the Soviet aircraft carriers ended up fighting the US carriers, it would be a glorified suicide for the Soviets), but no more than absolutely necessary.
The real issue, I think, is that neither side actually has any interest in going all-out. The Soviet Union never wanted to conquer the US and the US never wanted to conquer the Soviets.
Not that the cold war was remotely safe, it encouraged a very dangerous sort of paranoia that could have exploded very easily. But the difference in cost between the passive-aggressive-paranoid "defence" mindset both sides had and an actually aggressive mindset is so much that anyone who seriously suggested doubling the military budget to build a system of space lasers (for example) was not going to get a warm welcome in the halls of power.
fasquardon