The Horsham scenario is an interesting one as you don't want to say "let's re-instate the passenger service" without understanding what's driving it. i.e. Is it to allow people from Melbourne to do a day return to Horsham? (One of the negatives about the current Maryborough timetable). Or is it to allow Horsham residents to commute to Ararat (or even Ballarat) for the day?
I would say your primary market would be Stawell-Ararat, Stawell-Ballarat and Stawell-Horsham. You'll also get a fair bit of Ararat-Horsham and a little of Ballarat-Horsham (plus a lot of say Friday night footy trips all the way to Melbourne) but IMO it's the smaller legs that will get the most patronage - there is HEAPS of cross-pollenation between Ararat and Stawell and a fast train service would capture a lot of this travel and induce even more. Right now there just flat out are not enough houses in Ararat to house the people needed to work there (which also means housing is ridiculously expensive for such a small town) and commuting from Stawell is an option many would consider.
I do want to say that I agree with woodford etc who say it's not viable because of the break-of-gauge. If it were a simple extension it would be justified, but it isn't, and the cost of gauge-converting VLos for such a leg would be hard to justify. It's not unheard of for such hard-to-justify extensions to go ahead, a la Maryborough, but it takes a level of pork-barreling that will never happen in such safe seats.
If, however, Victoria wants to eventually move to SG for most of its country lines (which I think IS a good idea, long-term) I think Ballarat-Ararat would be a good choice to do early in the piece, partially because of the potential for then extending the service to Horsham. But unless and until you do that, it's probably not viable. It's certainly not viable to run it via Geelong.
As to the pathing issues - I don't really know, but to be honest adding a few more passing loops (if they would even be needed with only a few services per day) is low on the list of obstacles.