Middleton clearly does have ability. Watching him when Gerrard first came to the club he was scoring in Europe, domestically, and looked like he had been running at full-backs hi whole life. Rangers play with inverted wingers and Middleton strikes me as being a more traditional winger who likes to stay wide and hit the byline.
Middleton can't really fit in to our current team. Turning him in to an attacking LB is a good idea IMO. Modern full-backs basically function as wingers anyway so the attributes cross over. I think celtic played Hayes, a winger, as full-back for much of last season.