First of all, the steps leading up to transformation of reptile into bird are completely unobserved. They are hypothetical. No one has observed a lump on a population spread rapidly through a population, and observed successive mutations on that lump make it larger until it eventually enables some sort of limitted flight. It is a completely hypothetical statement with no observations.
Second, such a lump (whether it be a supposed leg on a whale or something else) is clearly a disadvantage. Such physical abnormalities would also make a creature less likely to reproduce, as others would shun a less appealing partner.
Third, this lump would make a creature less fit. Such mutations are a hindrance long before they are an advantage. An ad-hoc answer to this is that they perform an unrelated advantage until such a time as natural selection completes its creative work. Imagine wings though - what function would an incomplete wing incapable of flight provide that gives a selective advantage? While one step may provide an advantage, there is no guaruntee that the next step will. And, again, unfortunately for Darwinists this is unobserved.
Ah, my specialty. I know GFA is our champion about this topic, but I hope he doesn't mind the runner-up filling in for him when the champion's not available.
First of all, what do you mean by unobserved? If you mean we haven't literally travelled back in time to watch this happening, you're right, but until time travel gets invented we've still got the next best thing: fossils. The fossils from china's Yixian formation are probably a better example of the sort of thing whose existence you're denying in your second and third paragraph, but Archaeopteryx should be a good example of how one can see a snapshot of the evolution of birds. Its wings were developed enough for it to fly, but not enough for it to take off from the ground. It had a true combination of reptilian and avian characteristics. See
http://www.christianforums.com/t86023&page=22 , as well as a few other pages in that thread.
I've also explained some of the other ways it's signifigant in this respect at
http://www.christianforums.com/t80067 . (With some help from GFA, of course.)
The second problem simply does not exist. In the 1980s, Robert Bakker and Gregory Paul hypothesized that some non-bird dinosaurs would have evolved feathers for purposes other than flight, and provided several theories about what function they could have served before they were modified for flight. Starting in 1996, the fossils from China that I mentioned showed the exact sorts of nascent feathers that Bakker and Paul had predicted would exist on dinosaurs other than birds. It is also easy to see what sorts of benefits they could have brought to the animals that had them, since most of the steps that flight evolved through are represented by at least a few of these animals.
I'm not sure if this qualifies as seeing "evolution in action" or not, since most of the Yixian animals were "living fossils" even in their OWN time, retaining their primitive stage in the evolution of flight even after their relatives had evolved a more advanced version of flight. Archaeopteryx is definitely an example of how we can observe evolution as it is happening, and the Yixian dinosaurs are examples of the advantage that can be served by each of the evolutionary steps on the way to flight.
There was never any certainty that each subsequent step would provide an advantage to the animals that had it. In some of these animals, it DIDN'T provide an advantage. When that happened, the group of animals stopped changing, and remained the same even as their relatives progressed further in the evolution of flight. Sometimes the evolution of flight does not progress past that stage in ANY of the animals that are part of the way to evolving it: flying squirrels have not progressed past the gliding stage that preceded powered flight in birds, and they may end up like Icarosaurus and never progress beyond that stage. The fact that the ancestors of birds, bats and pterosaurs--the only three groups of flying vertebrates can fly without needing aircraft for it--found an advantage for each step on the way to flight, isn't nearly as surprising when one realizes that the evolution of flight also often hits a dead end.
But no one remembers the dead ends, now do they?
I've already described the intermdiate stages through which flight evolved several times, and you can find my description of these stages, and the animals that are examples of each of them, in the two threads I linked to. I'd rather not bore everyone here who remembers this from last time I explained it, so if I'm going to explain it again it should probably be in a way that can be intersting even to people who already know it.
Here goes:
When dawn's first rays attacked the sky, the twilight's dusky cold
Still held the slowly rousing beasts within its frozen hold.
But one small creature was alert to watch the day begin.
He needed not await the sun; his warmth came from within.
He outperformed his fellow beasts at every morning's start,
And brought about a progeny that shared his heated heart.
The warmth of life was nursed in them, but still the ice and snow
Abducted from within their frames the closely cherished glow.
A barrier the creatures lacked, to keep the cold at bay,
Except for one anomaly on whom it could not prey.
He outperformed his fellow beasts the frigid air had smote,
And brought about a progeny that shared his furry coat.
There came each year a special time when romance filled the air;
It roused the senses of each beast, and laid his passions bare.
Each female sought a gaudy mate whose favor to pursue,
And found a male whose feathered arms were fringed with brilliant hue.
He outperformed his fellow beasts in love's impressive way,
And brought about a progeny that shared his bright display.
Though predators the creatures were, they oft were also prey,
For they were not the only hunter living in their day.
But peril brought one fleeing beast a great discovery:
That beating fast his feathered arms could help him climb a tree!
He outperformed his fellow beasts, too high for claws to kill,
And brought about a progeny that shared his climbing skill.
The timid creatures rarely left the forest canopy;
With feathered wings they rode the wind and glided tree to tree.
The winged beat the beasts had used to reach their leafy lair
Served one of them to steer his glide and keep him in the air.
He outperformed his fellow beasts with his descent's delay,
And brought about a progeny enduring to this day.
It was a mighty purpose for the creatures to obtain:
To leave the rocky earth below and join the sky's domain.
Yet every step along the way, to its unknowing host
Was nothing but a slight advantage not enjoyed by most,
To outperform his fellow beasts with some new useful trait,
And bring about a progeny that surely shared his fate.
I wrote that in 2003. The world needs more paleontology poems.