If you are trying to do what you know to be right then you have lost nothing. If you aren't trying to do what you know to be right then revealing himself to you could very well get you cast out, which is not what God is in the business of doing.
So why has he revealed himself even at a low level of confidence? People supposedly already know right from wrong so that's not it.
If his revealing himself helps people to do right rather than wrong more than it imperils them, then in his not revealing himself to me I have lost something. (It's less probable that I will do right and thus I have been imperilled.) If he helps at a particular level of confidence less than he imperils then it doesn't make sense for him to reveal himself to anyone. If they're equal then there's no purpose in it.
Assorted thoughts on the rest:
That is, there are reasons God operates the way He does and they are directly related to why we are here on Earth.
Eh, there's a tension between power and justification. If you take it to the extreme, omnipotence and reason are mutually exclusive criteria. (Outside, perhaps, of an inability to commit logical contradictions, but that doesn't really seem to be involved here.)
Therefore the goal is to have us obtain the same state of power and knowledge that God has and just as we do not wish to give god-like power to an AI that is then going to screw things up so too God does not wish to do the same to us.
I'd be more than happy to give symmetrical power to an AI, assuming I had godly powers. The whole issue is that a recursively improving AI might become far more powerful than ourselves.
Those of us who get born on Earth did not fall but followed what was right when we knew for a surety that it was right.
Why do we need to qualify to return if we followed him and didn't fall?
Due to this state of failure, or sin, to follow what we know to be right we become unworthy of entering back into the presence of God.
Above you said we were here to gain a body and to qualify to return to the presence of God. However, if we become unworthy of returning to God that removes a lot of the reason for being here. Why not be embodied and immediately die? The purpose of life then having been completed.
As to eternal life it is up to us on earth to live according to what we know to be right. Not what we wish was right but what we actually know to be right.
You've already said knowledge is an incredibly high degree of confidence – indeed you've said that it's practically indistinguishable from certainty - which you've in turn tied to proof. I've seen no proof of right and wrong. A feeling certainly isn't proof; asides from anything else I've felt different ways about ethical issues at different points in time. Then you have the cultural variances in preferences and emotions....
This is the primary way with which God communicates with us as it testifies of the truth and lets us know what is right. It is also easily drowned out by other emotions and feelings and easily confused with other things (uncontrollable crying, a sense of community, trances, babelling incoherently, a sense of confusion are common things mistaken for the spirit) .
Again you've tied knowledge to being a high degree of confidence. If it's easily confused with other things then it doesn't provide that high degree of confidence. It also has the same problems as communication in general concerning its purpose. If the value of the guidance of testimony is exceeded by the peril of knowing more then it shouldn't be done. If the inverse holds then it should be done for everyone. If they're equal then there's no purpose in it one way or the other.
Did you not understand that the peril of knowledge is only if one does not follow what one knows? Knowledge is not something to be feared but to be sought after and this is true of all knowledge. Of course with knowledge comes responsibility to use that knowledge well and this is again true of all types of knowledge.
if we become unworthy of returning to God that removes a lot of the reason for being here. Why not be embodied and immediately die? The purpose of life then having been completed.
I actually had a discussion on Less Wrong already that cover...
(Disclaimer: This post is sympathetic to a certain subset of theists. I am not myself a theist, nor have I ever been one. I do not intend to justify all varieties of theism, nor do I intend to justify much in the way of common theistic behavior.)
I'm not adopted. You all believe me, right? How do you think I came by this information, that you're confident in my statement? The obvious and correct answer is that my parents told me so1. Why do I believe them? Well, they would be in a position to know the answer, and they have been generally honest and sincere in their statements to me. A false belief on the subject could be hazardous to me, if I report inaccurate family history to physicians, and I believe that my parents have my safety in mind. I know of the existence of adopted people; the possibility isn't completely absent from my mind - but I believe quite confidently that I am not among those people, because my parents say otherwise.
Now let's consider another example. I have a friend who plans to name her first daughter Wednesday. Wednesday will also not be adopted, but that isn't the part of the example that is important: Wednesday will grow up in Provo, Utah, in a Mormon family in a Mormon community with Mormon friends, classmates, and neighbors, attending an LDS church every week and reading scripture and participating in church activities. It is overwhelmingly likely that she will believe the doctrines of the LDS church, because not only her parents, but virtually everyone she knows will reinforce these beliefs in her. Given the particular nuances of Mormonism as opposed to other forms of Christianity, Wednesday will also be regularly informed that several of these people are in a position to have special knowledge on the subject via direct prayer-derived evidence2 - in much the same way that her parents will have special knowledge of her non-adopted status via direct experience when she wasn't in a state suitable to notice or remember the events. Also, a false belief on the subject could have all kinds of bad consequences - if the Muslims are right, for instance, no doubt Hell awaits Wednesday and her family - so if she also correctly assumes that her parents have her best interests at heart, she'll assume they would do their best to give her accurate information.
Atheism tends to be treated as an open-and-shut case here and in other intellectually sophisticated venues, but is that fair? What about Wednesday? What would have to happen to her to get her to give up those beliefs? Well, for starters, she'd have to dramatically change her opinion of her family. Her parents care enough about honesty that they are already planning not to deceive her about Santa Claus - should she believe that they're liars? They're both college-educated, clever people, who read a lot and think carefully about (some) things - should she believe that they're fools? They've traveled around the world and have friends like me who are, vocally, non-Mormons and even non-Christians - should she believe that her parents have not been exposed to other ideas?
Would giving up her religion help Wednesday win? I don't think her family would outright reject her for it, but it would definitely strain those valued relationships, and some of the aforementioned friends, classmates, and neighbors would certainly react badly. It doesn't seem that it would make her any richer, happier, more successful - especially if she carries on living in Utah3. (I reject out of hand the idea that she should deconvert in the closet and systematically lie to everyone she knows.) It would make her right. And that would be all it would do - if she were lucky.
Is it really essential that, as a community, we exclude or dismiss or reflexively criticize theists who are good at partitioning, who like and are good at rational reasoning in every other sphere - and who just have higher priorities than being right? I have priorities that I'd probably put ahead of being right, too; I'm just not in a position where I really have to choose between "keeping my friends and being right", "feeling at home and being right", "eating this week and being right". That's my luck, not my cleverness, at work.
When Wednesday has been born and has learned to read, it would be nice if there were a place for her here.
1I have other evidence - I have inherited some physical characteristics from my parents and have seen my birth certificate - but the point is that this is something I would take their word for even if I didn't take after them very strongly and had never seen the documentation.
2Mormons believe in direct revelation, and they also believe that priesthood authorities are entitled to receive revelations for those over whom they have said authority (e.g. fathers for their children, husbands for their wives, etc.).
3I have lived in Salt Lake City, and during this time was, as always, openly an atheist. Everyone was tolerant of me, but I do not think it improved my situation in any way.