"Will Israel be left with the right of religious based expulsion? Can she jettison any and all Moslems? If not, I wouldn't be surprised that many decide to stay."
Very few people talk about expulsion. The two adherents of that politically explosive issue are now dead by Arab terrorism - Rehavim Ze'evi who was Tourism Minister at the time, and Rabbi Meir Kahane whose political party was outlawed.
I'm sure Israeli Arabs would opt to stay rather than go to what will certainly be a cesspool of violence, intolerance and poverty. Some Israeli Arabs serve honorably in the army -- Druze.
"The problem with them staying then is how does the new state solution solve anything? My understanding is that Israel's greatest fear is to be outnumbered by Moslems in years to come."
The demographic issue is the one from the territories - West Bank and formerly Gaza - not from Israel proper which can hold its own as a Jewish State. Just jettisoning Gaza with its Jewish population of 8,000, separated 1.3 million Palestinians.
Also recent data shows that the Palestinians greatly exaggerated the demographic issue for their political ends.
http://www.aei.org/events/eventID.990/event_detail.asp
The one state solution would have ensured a Muslim majority and the annihilation of Israel for Jews. There is a push for that by the Arabs, Palestinians, Europe, and leftists here. That is why they define the idea of a Jewish state as racist.
In a way it is the natural progression for Europe which is seeking to destroy the nation state under the EU and thinks that nationalism is a dirty word. Of course that does not mean they are willing to embrace Turkey, understanding the implications of an Islamic country in their club, one who appears to be sliding towards Islamism. But they don't afford Israel the same regard.
Here is an American on the subject of the One State
http://www.nybooks.com/articles/16671