I agree Xenoblade itself has shown diversity in approach as well as adds diversity itself and tbh I'd rather them push this series to its potential rather than just do a new IP for the sake of it, the first party offering requires a series like Xenoblade to provide a consistent source of good experience in JRPGs as other first party RPGs are wildly different from JRPGs.

If anything the has to be a dedicated Xenoblade team while the secondary team can handle other projects and new IPs.

They could outsource it but unlike Twilight Princess, the character models in Xenoblade would be in dire need of completely redoing.  The polygon count is markedly lower and it really shows.  So they would have to be careful with who they chose to do that work.

Nintendo should just open a new studio to do remakes.
They could do with a team to build up a library of PBR assets too, so they may as well kill two birds with one stone.

A remake of Xenoblade should not cost too much.
If Monolith Soft were able to fully design and build a much larger game in 3.5 years; a remake of a smaller game should be relatively easy.

That wouldn't be a bad idea.  And Xenoblade wouldn't be the worst remaster project, a lot of assets just need new textures and mild modification.  It's just object models and character models are distractingly basic.

I think they should do a remake in a completely different engine.
Perhaps using Monolith Soft's current or upcoming engine.

It would be nice if they could get rid of the loading screens, and incorporate the newer interface of XBC2 into the remake.
The Switch has a decent amount of RAM to work with, I want Nintendo to really improve the game.

The soundtrack does not need touching.

I can't be positive but comparing X to the original I think the X engine is built on the original engine.  There's just some very odd quirks that engine had that stuck around.  The most obvious is the grass solution being identical.  I doubt they repeated that in a new engine.  So porting the original to the X engine should be a pretty smooth transition.  Not sure they could or would eliminate loading between regions, I think that's more a structural issue.

All I’ve seen from this game makes me go crazy for a Switch. This and Octopath Traveler will sway me to buy one as soon as I’m able to next year.

Perhaps.
But in the same way CoD: WWII is built on id Tech 3, or Titanfall 2 is built on Source.
Both games use Heavily modified engines, that only vaguely resemble their parents.

XBC2 is pretty much just built on XBCX's engine.

I want a remake of Xenoblade Chronicles X with the following additions:
1. A no-vocals option for music.

2. A redone UI.

The UI, IMO, is what keeps this game from being phenomenal; it made the entire experience a lot less enjoyable than it should have been. A lot of people were turned off by the open world approach to storytelling, but I liked it quite a bit. I also love it in Zelda. I wonder if with a better UI if the anti-openworlders would be more open to accepting the model.
Speaking of story:

3. If we're doing a remake, can we have an expansion? The story is begging for a continuation. We still don't know what's to happen to NLA or Lao.

It already uses the engine that XC2 is using, so it's not really out of date.

On the original Xenoblade, I think a remake would be excellent, but there's a lot more work IMO.

1. Redoing the character models, they look a little Dreamcasty.

2. Tweaking of the battle mechanics, I don't like the time mechanic as much as I did in my first playthrough, it's a little bit intrusive to the flow.

3. Perhaps a bit of an environmental art tweak in some of the blander locations like Valak Mountain, Bionis and Mechonis interiors. Maybe add a bit more spice to those places by throwing in a settlement here or there. Or, cut the losses and make the critical path faster to get through.

4. A revamp of the quest system; now this is hard because the quests are big. I would almost say cut them out in favour of something a little more interesting in the presentation. Perhaps a much easier way to get quests as well than looking at guides to see when characters appear. This system might be Takahashi's worst case of unfulfilled ambition (his most infamous is Xenogears disk 2, but I've grown to like that part over the years); speculation is that he intended for all of these to have cutscenes.

5. Redesign the item distribution system and trading. There must be more manageable ways to handle getting materials.

6. On additional story: I would love to have more exploration of the past events. They seemed a little underdeveloped for my tastes. I'd enjoy seeing more history.

Also, I really want Xenogears and Xenosaga. Xenogears would be big, because they're going to want to update the disk 2 section, and add a lot more open world stuff. It needs some more music too, the soundtrack, while fantastic, could use additional songs. Xenosaga needs a character model revamp on part 2. I would also love to see the UMN stuff expanded through all three parts.

Agreed. No need for Monolith to waste their time on a remaster, there are plenty of other studios like Tantalus, Panic Button, Grezzo, etc who can do it. Having said that though, I'd rather even those studios spend their time and resources porting current gen games to Switch instead.