***** NOT A TEACHER *****
You have asked an excellent question. May I contribute to your
(1) I think that many (most?) Americans would be more comfortable
with "in the street."
(2) Many times "on the street" in American English actually means
on the sidewalk:
What does the man on the street (the average/typical citizen) think about the government's decision? (Some Americans would be comfortable with
"in" in this particular sentence.)
If you don't have enough money for your rent, you will end up on the street ( = homeless)
I think that "in" is preferred when you think of a real or imaginary
enclosure: The cows were grazing (eating) in the field.
But "on" is preferred when you think of a large flat surface:
The girls were practicing soccer on the field.
Maybe (maybe -- at least in American English) it is "better" to
say that a carnival takes place in the street because maybe
one is thinking of a definite and confined space. On the other hand,
I think that many Americans would be comfortable with "There are
many expensive cars on the street nowadays." Maybe because we
are thinking of a large space without limits (a street can extend for
miles and miles).
Thank you & Happy New Year
P.S. I thought of two more examples:
(a) The people are demonstrating in the street.
(b) Call an ambulance!!! There's a man lying hurt in the street.
(In both cases, we are interpreting in our minds the word "street"
as a definite and limited area.)
Student or Learner