Very cool ideas! Definitely more interesting than the current Arcane Archer, and it doesn't look too underpowered. Like you say, it is a niche class and not for everyone.
Regarding the warrior vs. spellcaster thread...I think it's pretty clear this is supposed to be a warrior's PrC. It might be less true in 3rd Ed. (now that spells like Stoneskin are no longer caster-only), but half-level spell advancement is still plenty useful - and nicely tied into the PrC. Taking a level in Wizard will result in, what, half a bonus feat and 1 BAB less? Two levels might generally equal twice the power, but there are times when guidelines are only guidelines. 1 BAB in return for 5 caster levels (at Arcane Archer 10) seems like a good time to me. (But then, IMHO that rule of thumb doesn't work at high levels anyway.)
All that said, it does seem that this character would lag a little behind the rest of his party. A lone Arcane Archer might fare better than a lone Ranger (or what have you), but in terms of party dynamics, I dunno...