Your concerns are certainly valid, but in my opinion, I think you should definitely go forwards with your ideas. Especially in the post-Panda world, we're seeing Google really reward simplicity in design and infrastructure. Moreover, I think consolidating all of the different colors of one style onto one page makes the most sense for the users - in terms of creating an intuitive user experience and creating a faster and smoother browsing experience.
301 redirects are the right move for the product pages that you phase out. I think you will find link building and SEO work on the product level much easier with less pages to focus on. As far as the long-tail traffic loss implications, this is a valid concern, but obviously you can have a list of the different available colors on each product page. I would also beef up my long-tail optimization with a push for user generated content in the form of user reviews. If you don't already accept these, consider doing so. If you do accept these, how about a promotion of some type to stimulate a big push to accrue some more. You can have users select the color of the item they are reviewing in order to get those terms on the page more frequently.