I can't speak to American pricing, but if there is a HP ProCurve Switch in your price range then you might want to take a look. I've found their products to be keenly priced (in the UK anyway), great performers, and very well supported products with a very good guarantee.
I'm not personally a fan of DLink in general but can't comment on the specific model you are looking at. Regardless of what model you buy in the end you have the right idea with going from a group of 'home' products to a business class switch, but also consider the environment - clean power, well ventilated, decent cabling will all help...
Your proposed setup looks fine to me, I think you'll certainly see an improvement in reliability and throughput by reducing the quantity of switches and improving their quality. Simple is nearly always better.
You do have to consider that any product, no matter how well built, how well recommended, how well cared for can fail occasionally. If an outage is unacceptable, then whatever product you buy then it might be worth trying to find the money for two in case of a problem. Whether or not the risk vs. investment makes sense for you is something only you can decide.
I can say that from running a major business network, just about every make of 'business class' switch I've used has been very reliable - as long as they're not dead on arrival they should last for a very long time. The ProCurve switches have had the best record in this area for me, which is why I like to suggest them to others.
Based on your description of how everything is connected it doesn't sound like you have a network loop, although the symptoms sound like it. My guess would be that you have some type of flooding going on in the network. Start by unplugging cables from the switch one at a time until the lights stop flashing like crazy. When they do find out what device is connected to that port and investigate it.
Best Answer
There are a few things you could try, including but not limited to:
I would break this problem down into parts - start at the core of the network and work your way out until you figure out what the problem is. And please share the ultimate fix! :)