Nice post Jonathan!
"Mental Magic" at least from the more mundane pov, is more "propish" if you know what I mean. That is to say, it lays within the realm of "impossibility" vs. the potential of being plausible. Too, because of the "devices" frequently associated with it, be it a slate or dry erase board, playing or ESP cards, etc. the psychological translation (at least based on the reactions I've watched coming from the public over the years)in the viewer's mind, is that it's a clever trick that only mimics psi or paranormal phenomena.
Mentalism goes much deeper I believe, and when handled correctly, comes off as being more "real" simply because it tends to be "clean" and free of gadgets (other than maybe, a pencil and small bit of paper... maybe some borrowed items here and there.)
At another forum I recently pointed out to someone new in "Mentalism" bragging about all the junk he stuffs into his pockets and how he can do 20-minutes "Impromptue", that I do close to 90-minutes without a deck of cards or anything more than my wits, and perhaps a few bits of paper and a borrowed pencil. It's "true" mentalism vs. the masterbative antics of propo the clown, who has yet to learn the "art" of the craft and still views "Mentalism" in the same light he did magic... possibly even refusing to acknowledge that a difference exists.
Long story short (I know, I'm too late for that, but bear with me), Mentalism give the performer as well as the audience FREEDOM vs. restriction. It encourages the imagination in a way that induces a unique kind of "belief" and perception. Mental Magic on the other hand, allows the "Out" as it were -- the mental perception, nine times out of ten, is that it's a trick, little more!
Saying this, I am not putting down Mental Magic... I intentionally insert bits like Poison Monte and Casino Royal into my shows just to break up the more intense and "real feeling" demonstrations. After all, I'm there to ENTERTAIN and if I plan on getting the fee + a tip, I dang well better do so, e.g. there is value in both and finding the balance between the two, is a matter of personal style.
Interesting thread, hope others join in.