LU – WinnieThePooh wrote all there is to say.
Yes, EY is like no other place, there is kedusha and Torah and it is our Home. But we do not have the Beis Hamikdash, the shechina is in galus and Israeli society and government are far from ideal. EY as it is today is a mere shadow of what it should be. I think there may be a greater danger for a Jew in EY to forget this than one living in Norfolk.
As to Kedushas Yerushalayim, I think that is a Machlokes Rishonim. There is a Machlokes Ramba”m Ra’avad if Kedusha Rishona Kidsho Leasid Lovo or not. Some Rishonim (Tos) hold that even though Kidsho Leosid Lovo, that is only Kedushas Habayis, but Kedushas Ha’azarah is בטל.
The Gemara says about the Kosel that לא זזה שכינה מכותל המערבי. It is the accepted position that this is to be taken literally. However, honesty requires me to point out that there are ראשונים who write that this is not true either, and השב שכינתך לציון עירך is something we still await. The Radva”z holds this way. I think the Tzitz Eliezer at the beginning of Chelek 10 brings the various positions; it might be Chelek 12. I will bli neder post a link.