No, nothing wrong about it being tragic. Avatar does have tragic moments and the story would be a serious tale, not some comical fluffy b.s. But if I were to be the creator of the show (one day people, One day. Im serious), then I would still add in some lighter moments, to ease the tragedies.
I really like that idea about David. I haven't really thought about it yet. The way you described it though, it seemed like it was coming from David's perspective and not Rachel's. And i think that book was VERY important in Rachel's story arc, kind of like the closing to her personal tale. But it would definitely work if David came back as the villain with the help of the Crayak, but Rachel was the one tempted by the Crayak with power. And in the final act she and David would battle it out, Super Rachel vs Super David. That would be nice. Of course we both know how it would end, and i would absolutely stay true to the final scene in that book. Oh, and I wouldnt use David as a regular villain. I'd give him his own episode though, during the showing of his story, so we get a perspective on his new Animorph lifestyle. Good and the Bad.
If there's anyone I want to make a regular villain, it would be Fenestre, Visser Three's twin. Way too interesting to just use once.
As for Cassie, she HAS to let Tom get away with the escafil device. The reason you say you would change that is b/c 1) you probably dont like Cassie 2) You probably have a personal vendetta against her for letting Tom take the cube, which was an important tide-changing part of the story. When telling a really good and compelling dramatic storyline you have to remember one thing: The Apocalypse HAS to happen. Or at least start to happen. All hope has to appear lost for the hero(es). They have to be in their darkest hour. Plus it was very important in Cassie's storyline with Jake in the final arc. It was a big secret and led to Ax harboring some hatred there for her. So i think its important. It really made the Animorph look hopeless.
Im going to be honest. I didn't like the ending. I thought it was rushed and without the proper planning. KA probably convinced herself it was the best way to end a story. Now, I dont want some happy Power Rangers ending for the series. Tragedy does happen and the aftermath of war is never pretty. But I would still add in some lighter moments and make the ending flow well. Has to be good planning.
Like for one, I thought the battle b/w Rachel vs Tom really should have been Tom vs Jake. Brother against brother. Something jake had been dreading since day one The Invasion. Why not use that for the drama? I would have Jake send Rachel after Tom only to later on be approached by the Ellimist during the final battle, and after an Ellimist-toned conversation, have him move Jake to Rachel's side on the Blade Ship, or just switch their places. I dont know right now, but I think something like that would be better, having Jake fight his brother. I thought just having Rachel do it was very anti-climatic.