"Here's roughly what I want. I want to be able to highlight some block of code, ask the AI to modify it in some way, and then I want to see a diff view of before/after that lets me accept or reject changes."

That's exactly what this new set of Zed features lets you do.

Here's an animated GIF demo: https://gist.github.com/simonw/520fcd8ad5580e538ad16ed2d8b87...