Sauce – What level of heat is best when caramelizing

Well, you're definitely right. Onions cooked at a high temperature act differently than ones cooked at a low temperature, per "the bible" aka On Food and Cooking. However, it doesn't go in to much of an explanation as to why. Probably the most relevant aspects of what is in there are:

When onions and their relatives are heated, the various sulfur compounds react with each other and with other substances to produce a range of characteristic flavor molecules. The cooking method, temperature and medium strongly affect the flavor balance. Baking, drying, and microwaving tend to generate trisulfides, the characteristic notes of overcooked cabbage. Cooking at high temperatures in fat produces more volatiles and a stronger flavor than do other techniques. (p.311)

Since a low temperature produces less volatiles, I assume that the natural sugars of the onion shine through instead.

It's probably also important to understand where the oniony flavor comes from. The spice, as you describe it, is the onions natural defense mechanism. However, it doesn't exist defacto in the onion, but is rather the result of a chemical reaction. The onion stores very reactive sulfur in the cell fluid, and a seperate trigger mechanism in a storage vacuole. When you cut / crush / cook/ peel the onion, you break the vacuole and the enzyme and sulfur cause a chemical reaction giving off the spice. (p272 & 310)

In a cooking instruction, "low heat" doesn't refer to the temperature the sauce reaches, but the speed at which you heat it up. Many stove rings (hobs) are marked min-2-3-4-med-6-7-8-max. On that scale, a low heat would be 2 or 3. Very low heat would be min or 2. Left on the stove long enough, even at min, your sauce will boil. The key about using low heat is that it probably won't boil in the amount of time you need to melt the cheese, and that's good.

I make cheese sauce regularly (did so tonight) and I start at med to melt the butter, turn it down while the roux cooks, add milk, once it's pretty thick I turn it down even further, or just turn it off since an electric element will hold heat for a while, then stir in the cheese. If it ever happened that my cheese wasn't melting I guess I would turn the heat back up a bit, but that hasn't happened to me.