We don't even need to look that far. The 398s being introduced in South Wales are based on the same tram-train platform and some of the extensions being done and planned in terms of street running are great examples for showing what you could do.

There are two separate questions here: one about trams per se, on-road in the city centre and segregated outside, and the other about sharing lines with heavy rail. The first has been done, e.g.Croydon (where heavy rail lines were transferred rather than shared) or to a limited extent in other cities. And even in the USA - MAX in Portland, Oregon.

Sharing has been suggested (some time ago - before Sheffield - I forget when) but I recall that the idea fell foul of the issue of "buffing load". I have found little on this on line, or in old newspapers, but I think the standards required railway vehicles to sustain an end load (static?) of 200 tonnes. For trams the requirement was much lower, perhaps 20 tonnes. The Germans must have had a way round this.