Okay, I have no idea how a director plans his production, but I will give it a shot.

For the "What is X". I think I would stage this performance in modern time, because I bet it has been done countless times in it's natural setting. I think I would have it in a fairly big town, because that is the feel that I got from the first act. The city would have access to the ocean because they talk about Antonio shipments coming in. As for the audience, I am guessing that I would have to make the language slightly more modern, and change some of the references that Shakespeare uses for his time. Some of his allusions are not something that anyone these days would understand unless you explained every one. So I would replace them with phrases that have similar meaning, but that people could relate to. As for the actors themselves, it would be a little different because in our time, suitors coming from far away to try to marry a princess would be a little ridiculous. I think I would have Portia played as someone from the upper class of people, but not a princess. I would Bassanio played by a sympathetic gambler who is addicted to any sort of game that involves chance. Antonio would be portrayed as a shipping manager, who is very patriotic and not too fond of Arabic people due to 9-11. And Shylock would be played as a private bank manager, who happens to be Arabic.