I was just thinking about this on the way home tonight and it struck me: what happened to the hostage after Michael killed Solazzo? If they’re at war with the Tattaglias now, they’d kill him, wouldn’t they?
I took Michael’s distancing of Tom as a sign of his descent into paranoia and isolation, and not necessarily caused by anything Tom did. Perhaps Tom’s lack of Sicilian ancestry started to bother him as well, but mostly it was Michael’s increasing inability to trust anyone around him, even someone who did nothing to deserve it.
I don’t think so, the hostage was there to vouch for Michael’s safety, since he was a “civilian”. So he would be released soon after the discovery of Solozzo’s murder.
This is an interesting one. Michael probably is getting a bit paranoid at this point. But then it’s also not entirely unjustified, given how many people (Hyman Roth, Fredo, Frank Pentangeli) he’s learned he can’t place his trust in. Keep in mind that Michael also apparently finds out Tom Hagen got a job offer to leave the family and he didn’t tell Michael about it. Michael found out about it elsewhere.
Tom’s justification… “I turned it down. I gotta tell you about every job offer I turn down now?” is half-hearted. The implication is that he was at least seriously considering the position at one point, but never told Michael.
Michael can also tell Tom is holding SOMETHING back from him. But Michael’s unclear on what Tom’s obfuscation IS. He knows Tom has kept information from him, and he knows Tom has been considering leaving his role as consigliere… but Michael’s blindess and lack of attention to Kay prevents him from seeing what Tom’s biggest lie was… remember that Tom’s the one that tells Michael about Kay’s baby being lost too early to tell what it was. We find out soon thereafter that not only was it a boy but it wasn’t a miscarriage. Tom’s deliberately misleading Michael. He’s probably doing it because he thinks he’s acting in Michael’s best interests, but it’s still going to be a strain on their trust-based relationship.
Remember what Michael says to Tom right at this point. It’s one of the few times Michael raises his voice, which is to say loses control of his anger. “CAN’T YOU GIVE ME A STRAIGHT ANSWER ANYMORE?”
Oh, so Tom knew about Kay’s abortion? I always assumed he didn’t know, but I guess that makes sense (it would have been tough for Kay to cover it up on her own). That would certainly have contributed to Michael’s distrust of Tom.
Re: Michael’s paranoia: Michael does indeed have a lot to worry about:
-he has a bunch of disgruntled underlings, who could run to the the US Senate (McClelland?) hearings and spill their guts
-most of the people that know the details (of Michael’s murder of McCluskey and the Turk are still alive)
-Michael has made an enemy of that slimey Nevada senator (Geary)-who is on a leashe, but could turn on him at any moment
-Kay hates his guts
-Connie hates his guts-she knows that Michael authorized Carlo’s demise
-friedo knows LOT 9regarding Michael and Roth)-he could run to the local police (though that might not have worked)
All in all, Michael has a lot to worry about. why didn’t he just retire?
Because as he found out in part III, “Just when I thought I was out, they pull me back in.”
Well, he could have gotten a gig with the E Street Band. 
DON CORLEONE: Ralph Kramden is a pimp, he never could have outfoxed Rusty like that. But I didn’t know til this day it’s been Ricky Ricardo all along. Oh btw, at my funeral Uncle Tanoose is gonna come up and wanna schedule a meeting with Desilu, it’s a trap, waste him.
TOM: I always thought it’d be Andy Griffith.
MICHAEL: Nah, Griffith is folksy and set up his own family down in Mayberry, but Tanoose was always smarter.
The movie implies that only the Corleones are holding a “negotiator”, whom they would presumably release upon Michael’s safe return. It’s been a long time since I read the book, but the implication was that the people who supplied the negotiators were not too sharp, but they would never forego a war with someone that screwed with one of them.
It made a LOT of sense to whack Carlo. Carlo knows that Michael knows that he helped kill his brother. And did nothing about it. This is a recipe for nothing good for Michael, in any context. Yes, they could put him to use as a mole, but they, much more cheaply, put Carlo to use as an example. Twenty times more effective, for the cost of a piano wire.
Also, what kind of job could Carlo have done in Vegas, as a mole? “Hey, this is the guy that ratted out his own family! Let’s let him in on our secrets!”
And who could forget the confrontation at the end of the movie?
LUCY: Michael, you killed my Ricky. And he was finally going to take me to the club tonight. Waaaaaaah!
They are not worried about Michael’s safety. They are saying that it would be easier to plant a gun in a public place, and they can insist that the meeting location be a public place for Michael’s safety. Michael’s safety is a ruse… a plausible reason for why they can insist that the meeting should be in a public place.