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Thanks a lot for sharing this tip! It might be really useful for others.
Interesting approach! Does this require a jailbroken iPad?
You can just download a single file, edit it and upload it again (see http://www.textasticapp.com/manual/lessons/How_can_I_quickly_upload_downloaded_files.html) – and then delete the local file. You do not need to download the whole directory structure if you don't want to.

What other applications do you use to edit files remotely? Unless you're talking about an SSH terminal session, I'm quite sure they basically do the same thing (download the file, let you edit the file, but upload the file automatically when the file is closed).
Are you talking about the quick upload feature? (http://www.textasticapp.com/manual/lessons/How_can_I_quickly_upload_downloaded_files.html)

If the directory structure changes, you can just use the regular file transfer screen (using the "globe" button) and transfer your files there. The remote file view will reflect the current directory structure on the remote server.

You can also manually move local folders (see http://www.textasticapp.com/manual/lessons/How_can_I_move__copy_and_rename_files_and_folders.html). If there were extensive directory structure changes on the server, you can also just re-download the necessary folders (possible overwriting local changes).
I'm going to update the manual soon. Sorry for that.

You need to enter the local path in Textastic. So, if you put the private key file in the root folder in the Local Files section in Textastic, just enter "/id_rsa" as the file path. If you put it in a subfolder called "ssh", enter "/ssh/id_rsa".
Error "-1005" is "The connection failed because the network connection was lost."

Please make sure that your internet connection is working. I'm using the official Dropbox API without modification so there shouldn't be anything different compared to Good Reader.
Note: you can "Redo" commands using the virtual keyboard: tap on the ".?123" key and then on the "#+=" key, then on "Redo".

It's a lot easier when using a hardware keyboard: use Cmd-Z to Undo and Cmd-Shift-Z to Redo.
I just tried to reproduce this: I installed EverNote on my iPad. Now I could open an HTML file in Textastic, tap on the action button and choose "Open In...". In this menu, iOS lists all apps that register itself in the system as being able to open this specific file. Then I chose "Evernote" from this menu and the file was opened in EverNote.

The system determines which apps appear in the "Open In..." menu. Each app can tell iOS which files it supports. It seems like Evernote registers itself for the necessary file types, so I could open css, txt and html files from Textastic in Evernote.

Which part didn't work for you? Did you make sure that your file has the correct file extension (.html)?