Countrywide Internet isolation, inevitable fork
Your assumptions are perfectly right. Since there is no information exchange between the two partitions while the network is partitioned, and Bitcoin guarantees liveness, the global consistency suffers (see CAP Theorem). This means that each partition will have its own blockchain fork, unaware of each other. The forks are incompatible not just because the chain is defined to be a single path from a single header block to the genesis block, but also because transactions in the partitions will contradict each other (not least the mining generation transaction in the block).
Should the partition be prolonged the forks may even start to diverge in difficulty, as they will only see the computational power in their own network and adjust accordingly.

As for the merge, this is still being discussed and we do not have a good contingency plan. Letting the system merge the forks by itself, i.e., dropping the fork with the least work in it, would roll back the entire transaction history in that partition. A manual intervention by making the fork persistent (the alt-coin scenario you mentioned) is also not desirable, as it results in an immediate doubling of the funds in circulation, Furthermore it is likely that one of the forked alt-coins is going to whither and eventually be abandoned anyway. For now the best we can do is attempt to avoid prolonged chain forks, but the risks you pointed out are real and worth discussing before it's too late.