Hi Michael,

I note you did not mention "move", having any form of widgets (IMHO) should have rotate/scale and move.

I would agree with Brian. Widgets are now quite universal, Having an implementation as you put forward could cause some problems.
Firstly, having these widgets outside the object, well, it could be too easy to click the widget instead of an intended object selection that is behind the widget, or the other way, an intended click on the widget may select an object behind. Also, a rotate around where? If as in your example you have 3 objects selected, then the center of rotation is going to be where? That, as mentioned would need an extra option to set/move pivot point. With a widget (as mentioned by Brian), the widget itself is the pivot point, and could be moved by clicking/ dragging on its center.(or right click pivot center with popup options).

Also, with widgets, I would normally expect to see them in the 3d view.

Personally, I would disable such widgets as you suggest.

- Steve

EDIT:

The more I think of this implementation, the stranger it feels.

Having a 3D application with 2d widgets, that can scale in 1D or 3D, but not directly in 2D (2 steps would be required),.... strange.

Sorry Michael for my negativity on this.