[obloquy]

About Morgoth, I felt that while he was the mightiest (I'm still not clear whether Manwe was his equal or not--Tolkien says "coeval") to begin with

MT says that Melkor was the mightiest of all in his beginning, and all of the Valar combined could not contain him. "Coeval" just means "as ancient." They were brothers.

And if Gandalf was Sauron's equal, why isn't the White Council able to subdue him?

Because Gandalf was in a humble form that was imposed upon him to limit his options. He was not allowed to march up to the Black Gates and challenge Sauron to a duel. It would have done no good, anyway, since Sauron could never be wholly defeated without the destruction of the Ring. You say, "well, slay Sauron like Isildur did -- temporarily -- and go toss the Ring afterwards." But what about his Nazgul, and his vast armies of orcs and foreign allies? No, the only way for the mission to succeed was through shrewdness and secrecy. That is why Gandalf alone succeeded -- he was not so impressed with his own power to ignore the wisdom of the Valar and stick to a humble plan.

he is the most powerful Maia (in ME) in that. I don't think Balrogs are in his league...

Saying 'most powerful Maia in Middle-earth in some area' is a cop-out. Please see this thread and this thread for my arguments as to the relative greatness of Sauron and Gandalf.

Sauron was more powerful than the Balrogs, though. Tolkien is pretty plain about it in MT:

Melkor had corrupted many spirits — some great, as Sauron, or less so, as Balrogs.

aragornreborn:

It seems ridiculous that Melkor could be powerful enough to overcome all the Valar combined.

Seems ridiculous? From Athrabeth Finrod ah Andreth, Finrod speaking:

"Yet there is no power conceivable greater than Melkor save Eru only."

Tolkien backs this up himself in Myths Transformed.

I do think Melkor was coeval with Manwe at the beginning and that he lost his power as he went.

Coeval just means 'same age.' But I see what you're saying, and you're partly right. Melkor did diminish pretty rapidly, but he was more powerful than Manwë in the beginning.

One thing i believe is that Gandalf could easily have been Saurons equal, but in the "spirit realm" so to speak.

You're close. Not necessarily the "spirit realm", but in their eälar origins. As for Gandalf being afraid of Sauron, I address that in the threads I linked to above. I believe it was humility and innocence.