I'm not aware that the model category you want has been constructed. But it seems like an interesting question. You should ask Julie Bergner if she has thought of anything along these lines.
I don't have an answer, but I will think out loud for a bit.
(I'll be a little vague by what I mean by "space", but I probably mean "simplicial sets" here.)
I will assume that your property 3 should say: "The weak equivalences between fibrant objects (i.e., between Segal spaces) are the DK-equivalences." I would also like to throw in an additional property:
4. The trivial fibrations between Segal spaces are maps $f:X\to Y$ which are DK-equivalences, Reedy fibrations, and such that the induced map $f_0:X_0\to Y_0$ on $0$-spaces is surjective. (Note: since $f$ is a Reedy fibration, $f_0$ is a fibration of spaces.)
Yes, this comes out of thin air ... but it's modelled on the trivial fibrations in the "folk model structure" on Cat. You could go further, and posit that fibrations between Segal spaces are Reedy fibrations such that $f_0$ is surjective.
Given a space $U$, let $cU$ denote the "$0$-coskeleton" simplical space, with $(cU)_n=U^{\times (n+1)}$. If $U$ is a fibrant space, then $cU$ is Reedy fibrant; if $U\to V$ is a fibration, $cU\to cV$ is a Reedy fibration. Furthermore, $cU$ clearly satisfies the Segal condition.
Thus, if $g:U\to V$ is a surjective fibration of spaces, $cg: cU\to cV$ should be a trivial fibration in our model category, according to 4.
The functor $c$ is right adjoint to $X\mapsto X_0$: that is, maps of simplicial spaces $X\to cU$ are naturally the same as maps $X_0\to U$ of spaces.
Putting all this together, we discover that, if such a model category exists, a cofibration $f: A\to B$ should have the following properties: the map $f_0 : A_0\to B_0$ is a cofibration of spaces, and $B_0=B_0'\amalg B_0''$ so that $f_0$ restricts to a weak equivalence $A_0\to B_0'$, and such that $B_0''$ is homotopy discrete (i.e., has the weak homotopy type of a discrete space).
In particular, a necessary condition for $B$ to be cofibrant is that $B_0$ is homotopy discrete.
This is a pretty restrictive condition on cofibrations, but it does not seem impossible. If there actually was a model category with all these properties, it appears that the class of fibrant-and-cofibrant objects would be what you might call the quasi Segal categories. These are the Segal spaces $X$ such that $X_0$ is homotopy discrete. Cofibrant replacement of a Segal category would give a DK-equivalent quasi-Segal category.
That would be a pleasing outcome, and probably along the lines of what you're looking for.
I am not knowledgeable enough to have much to say I have not writen in my answer to a previous question of yours, and I think that David Roberts's answer (or, rather immodestly, my previous one) provides what you were looking for as regards your first question. Just a few additional small points:
Pursuing Stacks is not a letter. See Tim Porter's comment.
As regards Grothendieck's opinion of Thomason's model structure, I do not know. Actually, I am unsure he knew of Thomason's model structure when writing Pursuing Stacks [EDIT: see Tim Porter's comment below]. What he knew for sure was that the localization of $Cat$ with respect to classical weak equivalences (functors between small categories the nerve of which are simplicial weak equivalences) is equivalent to the classical homotopy category. The first proof is due to Quillen and Illusie "wrote the details" (his words) in his thesis. (And there is a quite simpler proof, by the way.) Model structures crop up in Pursuing Stacks at some point, but I am pretty sure the idea is not developed in the beginning, which is much more concerned with mere models for homotopy types. Here is a citation from Chapter 75: "the notion of asphericity structure — which, together with the closely related notion of contractibility structure, tentatively dealt with before, and the various "test notions" (e.g. test categories and test functors) seems to me the main payoff so far of our effort to come to a grasp of a general formalism of "homotopy models"." (Beware: these asphericity structures are not what Maltsiniotis called "asphericity structures" in his own work.)
Another fact Grothendieck knew was, of course, Quillen's Theorem A. It seems he did not write a detailed proof of the relative version, but he gave a sketch of a toposic proof of it, though, and took it as an axiom for what he called basic localizer.
As for your second question, I do not know, but it seems to me that Grothendieck was not that interested in simplicial sets and thus did not work extensively with them. In a 1991 letter to Thomason, he wrote: " D’autre part, pour moi le "paradis originel" pour l’algèbre topologique n’est nullement la sempiternelle catégorie ∆∧ semi-simpliciale, si utile soit-elle, et encore moins celle des espaces topologiques (qui l’une et l’autre s’envoient dans la 2-catégorie des topos, qui en est comme une enveloppe commune), mais bien la catégorie Cat des petites catégories, vue avec un œil de géomètre par l’ensemble d’intuition, étonnamment riche, provenant des topos. En effet, les topos ayant comme catégories des faisceaux d’ensembles les C∧ , avec C dans Cat, sont de loin les plus simples des topos connus, et c’est pour l’avoir senti que j’insiste tant sur l’exemple de ces topos ("catégoriques") dans SGA 4 IV". (See here.)
To conclude, let me mention that, if one takes Grothendieck's viewpoint of homotopical algebra, there should exist not only a homotopy theory of categories, but a homotopy theory of $n$-categories. In this respect, there should be a "relative Theorem A" for every $n$, which should allow one to define a workable notion of "basic $n$-localizer". (Actually, this is already done for $n=2$: see this paper by Bullejos and Cegarra for Theorem A.) And then one should work out a theory of test $n$-categories, whose $(n-1)-Cat$-valued presheaves should be models for homotopy types, and so on. To sum up, what Grothendieck wanted to do amounts to giving new foundations for homotopical algebra, and this is still a work in progress.
David Roberts gives the two most useful available references in his answer. If you want to read Grothendieck's words (and in English), just wait for the upcoming annotated version of Pursuing Stacks.
EDIT (2013/10/29): Rereading this answer, I realize that I should add something of which I was not aware at the time of my writing, still regarding Grothendieck's knowledge of Thomason's model category structure (see also Tim Porter's comment and David Roberts's answer). An annotated version of section 69 of Pursuing Stacks is available at http://www.math.jussieu.fr/~maltsin/groth/ps/ps-69.pdf. On page 4, Grothendieck writes that "it appears very doubtful still that (Cat) is a “model category” in Quillen’s sense, in any reasonable way (with W of course as the set of “weak equivalences”". Thus, he was not aware of the existence of Thomason's structure then. See also note 6 on that same page: Grothendieck has learnt of the existence of Thomason's model structure between the writing of Sections 69 and 87.
Best Answer
I find some of this exchange truly depressing. There is a subject of ``brave new algebra''and there are myriads of past and present constructions and calculations that depend on having concrete and specific constructions. People who actually compute anything do not use $(\infty,1)$ categories when doing so. To lay down a challenge, they would be of little or no use there. One can sometimes use $(\infty,1)$ categories to construct things not easily constructed otherwise, and then one can compute things about them (e.g. work of Behrens and Lawson). But the tools of computation are not $(\infty,1)$ categorical, and often not even model categorical. People should learn some serious computations, do some themselves, before totally immersing themselves in the formal theory. Note that $(\infty,1)$ categories are in principle intermediate between the point-set level and the homotopy category level. It is easy to translate into $(\infty,1)$ categories from the point-set level, whether from model categories or from something weaker. Then one can work in $(\infty,1)$ categories. But the translation back out to the "old-fashioned'' world that some writers seem to imagine expendable lands in homotopy categories. That is fine if that is all that one needs, but one often needs a good deal more. One must be eclectic. Just one old man's view.