You don't see one good physics-based reasons why this might be undoable?
I do. In fact, I see several ... one has to do with the inverse square law as it relates to the expansion of a propagating 'radio' (EM) wave ...
1 satellite in geosynchronous orbit can't do the reconnaissance job of even one balloon, because of its distance from Earth. Trying to, say, photograph Earth from geosynchronous orbit is not likely to be terribly successful.
I think I saw something about that on the History Channel. But once the external fabric caught on fire, it was inevitable that the hydrogen gas bags would also ignite.
True, though hydrogen rises so quickly that the flames shoot up and away. Looks spectacular, but much less dangerous to people on the ground, and it's over quickly. The Hindenburg's hydrogen did catch on fire, but what you see in the film is its fabric burning.