From where do I start and where do I finish?
1). Ethanol is not a simple solvent in the given reaction. Contrary, ethanol participates in the reaction and is finally transformed to acetaldehyde. Transformation of EtOH to acetaldehyde is an oxidation reaction. Oxidation reactions are always accompanied by the corresponding reduction ones. In the given reaction, in question, transformation of aryl diazonium salt to the deazotated aryl compound, is the accompanying reduction reaction. In oxidation reaction of EtOH alone by H2SO4, transformation of H2SO4 to H2SO3, is the accompanying reduction reaction.
2). HSAB theory is just a useful tool that helps to understand how some reaction mechanisms occur. But on the other hand, HSAB theory is not the only and unique holly text. Other significant principles, such as thermodynamic laws and mass and charge equilibria must also be respected. Thus, it is obvious that if adding a mineral acid to sodium hydride, neutralization and a vigorous formation of H2 will occur. But if in acidic medium, the soft base H(-) meets a soft or a borderline acid, it will prefer to react with them rather than with the hard acid H(+).
3). In the given reaction, in question, the H(-) donor is ethanol and not the nitrous acid of the initial step.
4). I haven’t seen the said paper. So, I cannot have an opinion about this.
5). Dr. Robert Grossman is right. Alkenyl carbocations are difficult to exist. However, this is somehow different in conjugated systems, e.g. butadiene, aromatics, etc. Therefore, this great scientist and educational who perfectly knows how to use the words, declares that “it is almost certainly incorrect” and not that “it is certainly incorrect”.
6). Not only Canizzaro but also Favorskii reaction, HCO2H reductions, KMnO4, chromic and similar oxidations work by hydride transfer.
7). Please do not confuse the recently proposed mechanism (protonated nitronium group as an hydride donor) with the one of the given reaction, in question (ethanol as an hydride donor). Both are Sandmeyer, but they are different reactions and with different nitrous acid stoichiometry.