My touchstone for assisting in deciding what is readable in code is "how (sensibly) close to prose is it?". My justification is that what most of us read most, and are therefore best at parsing, is prose. Applying similar criteria for use of white space and "flow" surely has some benefit.

On the other hand a good friend of mine says that code is more like mathematics and that we should eschew (horizontal) white space where ever possible (although we agree on indentation style).

Before I learned Perl K&R indentation was complete anathema to me and I could see no justification for it what so ever. For Perl K&R seems to be a natural fit and that is what I have come to use. Although readability isn't generally a function of the language, some languages impose their own natural style, some even force a style.

In the past when I was more often proof reading other people's code I would fiddle with the formatting - not because that was "the right way", but because it helped me focus on the structure of the code and more easily grok it. For some reason this seemed to upset some authors. I wonder why? ;)

Some of the OP might be better described as a comentary on "maintainability", rather than "readability" (especially the variables/data structure section), although the two are rather tightly coupled.