Which is why I cannot see any way out of this. China will try to enforce their idea of sovereignty and dictate to the other countries in the region regarding trade and navigation of this important sea lane. When push comes to shove, either China will have to back down and allow other nations the use of these sea lanes, as International law has always prescribed, or Japan and the US will have to concede and accept this. If the US decides to use military force to back China down, we will end up in another Korean-style war, at least initially. Somewhere down the line, like you say, someone will get fancy with tactical nukes and we will be undergoing our first nuclear exchange. Putin loves to bring up the topic of nukes. I know our current President will be cautious, but he's soon to be replaced, and anyone else is going to be more hawkish than him. So, China may get a surprise when they realize what they've brought on themselves.
Found some really good images of the progress they've made constructing these islands.
http://www.washingtonpost.com/graphi...uth-china-sea/