There have been a few blogs discussing 'tradition' lately.
Abu Muhammad offers a four part investigation of our notion of 'tradition', questioning some common held misconceptions by both 'traditionalists' and 'non-traditionalists'. Tradition (1) - Key Dualities investigates the concept of tradition, looking at the espitemlogical, social and hisotrical dualities that are posited when it comes to discussions 'tradition'. Tradition (2) - Conversation Incarnate explains that "[t]radition [...] is not merely a point in history which has exhausted its potential. It is not an event or set of events happened in a confined slot. It is rather a phenomena in history which makes our past alive to interact with our present in order to make our existence meaningful while directing the course of our future. [T]radition may be understood as our perceptual conversation with phenomena of past." Tradition (3) - Converse to Create Knowledge lays down his own views, where he concludes "that tradition is a process to construct forms of knowledge. We need to carryout this critical conversation with awarenesss in order to identify the roots of these forms. This awareness would enable us to manage pseudo-conflicts at higher levels which might not be between traditionalism and rationalism per se but because of giving dominance to one form of knowledge over other." He concludes with Tradition (4) - Conclusion and more; here he outlines a way forward, noting that anyone interested in questions of tradition and modernity should try to distinguish between history as an 'event', and tradition as a continual set of conversations needing 'fresh particpants' (who, I would say, are themselves are 'conditioned' by the present, so must bring something to the discourse). If this conversation stops, the tradition dies (which sort of explains why other madhabs are no longer in existence).
Haroon tries to conceptualise the problem in relation to Traditionalism's and Salafism's views on history: "Part of the problem is that it is not traditionalism that Muslim traditionalists want to defend, per se, but the body of Islamic law that developed out of the formative period of Islam — in this sense, tradition privileges a certain time period not because of its antiquity but because of its closeness to the Divine’s communication with and through humanity. (That's the same thing Salafism does; however, traditionalism wants to privilege a certain mode of understanding dominant for a certain period of time, whereas Salafism is, in essence, the time of the Salaf. The traditionalist imagines a clean break can be made in the absence of such genealogical strictness.)" (Also see the exchanges between Haroon and Eteraz.)
I would also point to Alasdair MacIntyre's views on tradition (I found this link on Google as I don't have the book in front of me) as he set them out in After Virtue: a study in moral theory: "The traditions through which particular practices are transmitted and reshaped never exist in isolation for larger social traditions. What constitutes such traditions? [...] We are apt to be misled here by the ideological uses to which the concept of a tradition has been put by conservative political theorists. Characteristically such theorists have followed Burke in contrasting tradition with reason and the stability of tradition with conflict. Both contrasts obfuscate. For all reasoning takes place within the context of some traditional mode of thought, transcending through criticism and invention the limitations of what had hitherto been reasoned in that tradition; this is as true of modern physics as of medieval logic. Moreover when a tradition is in good order it is always partially constituted by an argument about the goods the pursuit of which gives to that tradition its particular point and purpose [...] So when an institution--a university, say, or a farm, or a hospital--is the bearer of a tradition of practice or practices, its common life will be partly, but in a centrally important way, constituted by a continuous argument as to what a university is and ought to be or what good farming is or what good medicine is. Traditions, when vital, embody continuities of conflict. Indeed when a tradition becomes Burkean, it is always dying or dead." [my emphases]
Talal Asad has reworked some of these ideas for Muslim traditions: "In an important sense, tradition and modernity are not really two mutually exclusive states of a culture or society but different aspects of historicity. Many of the things that are thought of as modern belong to traditions which have their roots in Western history. A changing tradition is often developing rapidly but a tradition nevertheless. When people talk about liberalism as a tradition, they recognize that it is a tradition in which there are possibilities of argument, reformulation, and encounter with other traditions, that there is a possibility of addressing contemporary problems through the liberal tradition. So one thinks of liberalism as a tradition central to modernity. How is it that one has something that is a tradition but that is also central to modernity? Clearly, liberalism is not a mixture of the traditional and the modern. It is a tradition that defines one central aspect of Western modernity. It is no less modern by virtue of being a tradition than anything else is modern. It has its critics, both within the West and outside, but it is perhaps the dominant tradition of political and moral thought and practice [...] In this sense, I think, we can regard the contemporary Islamic revival as consisting of attempts at articulating Islamic traditions that are adequate to the modern condition as experienced in the Muslim world, but also as attempts at formulating encounters with Western as well as Islamic history. This doesn't mean that they succeed. But at least they try in different ways." [my emphases] (That interview might also answer my question on Muslim relationship towards "European ideas", as further down he questions the idea that Modern Science, Technloloy, Art, Politics and Philosophy must all 'hang together'.)
Eteraz points to Ambivablog, who looks at 'a way beyond religion' (from Ambivablog, I found a detailed response to her post by a Catholic blogger, Ales Rarus). Eteraz also has a list of faults with 'traditionalism', in response to (yet another) story of abuse perpetrated against foreigners, in this case a Pakistani girl, in Saudi Arabia. This has generated controversy and conversation (the two usually go hand-in-hand) with Yursil of Mind, Body, Soul, who has responded with an equally stinging rebuke, although unfairly calling Eteraz 'an Irshad Manji' (Eteraz might be controversial (or unconventional), but I would defend him against charges that he is just emulating Manji et al.). See also Eteraz's exchange in an open letter to Yursil and some follow up comments, and also Yursil's counter comments.
(It should also be noted that Hanabli legal texts do form the basis of Saudi laws; whether their applied 'correctly' is a different question... or is it?)
Those who would call themselves Modernists posit that Tradition is unchanging and static (cf. "Islam has rejected modernity"). Some Traditionalists would also argue it is untouchd by 'history'or 'time'. These are both false. Traditions always undergo change: they can be subsumed by those from the outside; or they can be invigorated with the formation of new traditions from within; or they can undergo syntheses with other traditions. All these changes occur if a tradition encounters problems not yet faced or fail to produce adequate solutions. In other words traditions are discursive (Muslim traditions no less so than others). Dissent, debate, dialogue, opinion-making, re-formulation, adaptation, as well as consensus-making, uniformity and agreement are all part of a "tradition". (The question for Muslims appears to be: 'who is allowed to engage in this?') But then Modernism is also a tradition, with its own tenants that have to be defended and explained. Today many are demanding that Modernism be reinvigorated, strengthened, and its core principles and beliefs are furthered, after decades of sustained criticism (by 'postmodernists' and 'arch-conservatives'); even through the use of arms. (Modernism, warfare and the threat of violence are inextricably linked, despite the claims of many of its adherents that it uses only reason to further its aims -- someone who says otherwise is blind to the 20th-century, the Modern Century.)