The trouble is unless we impose some sort of cap on the amount of foreign players a squad can have (or maybe a rule imposing a cap on how many can be on the field at any one time), the England team will continue to suffer. Look at these figures:
Season 95-96: English players: 65% Foreign players: 17%
This season: English players: 36% Foreign players: 51%!!!
These are figures printed by the Sun from the leaked PFA report. Italy have over 60% Italians playing in Serie A and they're World Champions!
Personally, I'd go with a rule limiting the amount of foreigners that can be on the pitch at any one time. This would keep the foreign players in the squad happy while still ensuring regular Premier League football for up and coming English players.
Even if we have to endure a period where we get totally outclassed in Europe, I reckon it'd be worth it if in approx ten years we have a crop of English players ready to take on the world because they have been able to ply their trade on a regular basis in the Premier League and not just watching from the bench all the time!
The way our kids are being trained is on the right track. My nephew attends a football class run by Chelsea and the emphasis is on good technique rather than speed (which can develop as the boys get older) and most importantly, maintaining possession of the ball with good, accurate passing. It's just like learning a new piece of music. First, you practice it slowly until you've got it technically accurate and then you speed it up and add your own style to it!