There is no written rule about the length of a Pope's term in the office. That most of the Popes in history have stayed in the office until their deaths doesn't mean that is the requirement for everyone who serves. The Pope is not the Church, he is simply the servant who happens to be the head of the world's Catholics. Pope Benedict realized that his health was failing and that being the leader would require much more strength than he had, and staying in the office would be detrimental to the work of the Church.
You are correct. There is also no written rule that the Pope must come from the college of Cardinals (it's simply been an unbroken tradition since the 1300s) or even that the Pope must be ordained clergy (it's simply been an unbroken tradition for 2000 years). In theory, they could name me, a lay Catholic, as the next Pontiff. But even though it's totally permissible under the code of canon law to do so, that would create outrage, since it would be a total disregard for Catholic tradition.
In short, just because the Church or a Pope CAN do something, doesn't mean they should. I don't like to see an old man struggling to carry on his duties as Pope anymore than you do. It's unfortunate than many Popes physically deteriorate. But Christ bore the cross for hours, and JP II bore the papacy under much greater physical detriment than Benedict. It is a testament to Popes who carried on this tradition.
I accept Benedict XVI's right to step down, but I disagree with it and I am deeply saddened to see him to do so. The seat of Peter is not like a secular job where one just "retires"