I can tell you that it's not all black and white (either/or) like you mention. "Extremely nationalistic" is the case in any country. I don't completely disagree that the "average German" --if there is one-- would purchase a German product before an American. That's just the way it is with any nation. However, the Mustang has a reputation here and it's a good one (not because of anything other than it's an icon). Just like we in North American don't buy a Mustang GT for the good fuel economy nor the super quality interior etc. Germans are the same way. Fords sell very well here.
I do however completely disagree that a Mustang won't sell "regardless of the powertrain." I could be wrong, but I see a buttload of Fords here on the roads. I also see a lot of 6 cylinder and V8 cars driving at 120+ mph and I know for a fact they aren't getting great gas mileage at those speeds--no matter who makes them. If the style, HP, drivability, reliability, and price is there it will sell no matter if it's made in Germany or not.
...and, your "German" who bought a Mustang GT and got razzed by his friends for buying one is nothing more than what we see in America: "You should've bought a Chevy," or "I wouldn't be caught dead spending that much money for a BMW," or my favorite, "I don't understand why anyone would buy a V8!" "Don't you know you are depleting the oil reserves?" "My Prius gets 3x mpg!" He, more than likely, got razzed because he bought a V8 and spent more in taxes and import fees than he would have buying an AMG. It's not because his German friends are goose-stepping in unison with each other and hate everything American.
The photo albums you share with us prove your point 100 fold!
What was the name of that Wild-West inspired town?
If Ford can get the Mustang in showrooms at prices close to competing 'sporty' cars (BMW 1 and 3-series, which btw typically have fewer luxury options in Europe) they could sell the current model without any problems.