1) What about the west? Are they not vulnerable to attack from that
direction?  Does this fortification seem the best they can do?

The world is flat at this stage of the mythology, so that would hamper an attack going around the world and coming at them from the west.  Rearing mountains seems to be the natural strategy for defense among the Valar (Morgoth does the same with Thangorodrim).  They would serve as a barrier to Morgoth's minions.

2) If the Valar are so concerned for their safety, why do they make
this concession to a group of elves?

They have a soft spot for the Elves and want to retain the ties among the Vanyar, remaining Noldor, and Teleri, but that did cost them in the Second Age when Ar-Pharazon and his Men invaded through the Calacirya.

3) And what are we to make of this statement about the elves' right to
freely feel the breeze? Is this more important than security?

They are still linked to Middle-earth in many ways, to the mortal lands in which these immorals were born, so they cannot be completely isolated in an immortal bliss from the world in which they were born.

4) Does it sound like Tolkien had been reading about Ulysses? Or about
Avalon?  What else do these islands remind you of? Is this another
example of Faery? And what of those who sleep there -- what will they
awaken to?

This is another Faery of sorts, and the island of Circe as well.  Myths of an enchanted place protected by a sleeping spell are common, and Tolkien drew upon those legends here.

5) Is the kind of shadowing that is done here the same kind of
shadowing that evildoers use? To what extent is the hiding of Valinor
like the hiding of Morgoth? What are they each hiding from?

The Valar are striving to keep the taint of Morgoth out of their preserved corner of Arda unmarred.  Each views the other as a taint, so Morgoth hides from the light of the sun and moon and from the Valar, and the Valar try to box themselves in.

  Cor Blok, Battle of the Hornburg (detail)