BIAB sounds like the best option for you. (Me too.)
Yes, you can easily do 2.5 gallons in a 5-gallon pot. It helps to have a second pot on hand so you can do a quick dunk with more water for a batch sparge, or with a colander and a bucket you can even do a quasi-fly sparge, which is what I usually do. Either one will improve your efficiency by a bit, if you care about that at all.
I mash for just 40 minutes most of the time. Based on lots of experiments, 30 minutes wasn’t enough, but 40 minutes always is.
DMS is a tough one.... some people never seem to get it no matter how short or long the boil, and other people get it even after 90 minutes, so I don’t know what to tell you there except to try a 45-minute boil if you like and see what you get. If you experience the slightest DMS then boil longer next time.
I BIAB on my stovetop. It will lose a little heat even over just 40 minutes, but I find that if I shoot a little high on the mash temperature, then if it falls 10 degrees over the course of the mash, it’s not too big a deal since the average mash temperature will still be close to what I wanted. I also keep a quart or two of boiling water on a side burner in a smaller pot in case I need to bring up temperature fast. Pretty simple and effective. I do like your oven idea, keep the whole stove warm there for a while! Good idea. Some people even put their kettle directly into a slow 160 F oven to keep things warm. I haven’t done that yet but it seems a great idea as well.
Cheers to another BIAB brewer! It’s all I ever do anymore. I’ve taken small batches to the next lower level, now doing 1/3 of a standard 5-gallon batch, or 1.67 gallons per batch. I do this, like, all the time now, and love it. More bottles than a 12-pack, but not so many that I get tired of the beer either, and lots lots more room for experimentation with different recipes. Perfect for people like us.