I think that we actually have some things in common, terminological issues aside. I don't have a problem with your "continuum" point when it comes to criticizing SPE. IIRC, Kisseberth did some nice studies on so-called "low level" phonological rules such as final devoicing that showed a continuum of voicing features (phonation, consonant length, length of preceding vowel). That is, there were a lot of "trace" features in devoiced consonants that differentiated them from voiceless consonants, although the data was inconsistent about the presence of trace features.
Regarding the labels "phonology" and "morphophonology", I have a somewhat longer historical perspective on their use. Originally, Baudouin de Courtenay settled on the terms "physiophonetics" and "psychophonetics" as respective labels for alternations that belonged to one category or the other. Trubetzkoy was never Baudouin's student, but he and Jakobson were Moscow-trained linguists who were admonished by their teachers not to pay attention to Baudouin's radical ideas, which, of course, drove them to study Baudouin's theory in great detail. They settled on the terms "phonology" and "morphophonology" for what Baudouin was calling "physiophonetic" (single-phoneme) and "psychophonetic" (two-phoneme) alternations. Physiophonetic alternations were not purely "allophonic", because they could represent phonemic neutralization, and Trubetzkoy handled phonemic neutralization under the rubric of "archiphonemics" within his phonological theory. However, in an Appendix to his book, he called "morphophonology" a subject that did not belong to phonology. It belonged to a completely separate area of grammatical description, and that is consistent with Baudouin's fundamental dichotomy between physiophonetics (your "phonetics") and psychophonetics (which you include under the rubric of "phonology"). I could go into much more detail on Russian schools of phonology, whence came modern phonological theories, and how phonological theory evolved in the West, but that would not be appropriate here. Suffice it to say that Natural Phonology maintains Baudouin's original alternational dichotomy in terms of its "Process" vs "Rule" dichotomy. Processes are responsible for physiophonetic alternations and Rules for psychophonetic alternations. (In the context of the thread topic, English contraction would be a morphonological/psychophonetic/Rule-based operation, not a phonological one.)
There is a lot more I could say about the Rule/Process dichotomy here, but I fear that I have already gone well beyond the boundary of adhering to the thread topic. Sorry for the digression.