photonkid said:
If that's all there is to it then why is the CMB and radiation from distant stars red-shifted due to the expansion of space?
It isn't. It's redshifted due to the geometry of spacetime.
photonkid said:
Does the distance between y1, y2 increase at the same rate as between x1, x2?
The question has no meaning because "points in space" are an abstraction; they're part of our model, not part of reality. To really understand what's going on, you need to think in terms of concrete objects: our galaxy, other galaxies, galaxy clusters, etc.
For example, suppose we reformulate your question this way: consider four planets, each of which is moving in such a way that observers on those planets see the universe as homogeneous and isotropic. In other words, observers on all four planets are "comoving" observers (this is the usual term used in cosmology). The four planets are divided into two pairs; each pair is separated by the same proper distance at a given instant of time, but what is between them differs:
Pair x1, x2 are separated by nothing but empty space.
Pair y1, y2 are separated by mostly empty space, but about halfway between them is our Local Group of galaxies, the total size of which is a small fraction of the overall proper distance between the pair.
How will the rate of increase of proper distance between the two pairs compare?
The answer, I believe, is that they will be the same. However, there are a couple of caveats. First, proper distance can't be directly measured. We can only directly measure redshift, apparent luminosity, and apparent angular size for distant objects. (We'll assume that the observers on each planet have telescopes powerful enough to do this.) We estimate distance from these data (actually from the last two--redshift itself tells us something different).
Second, we observe distant objects not as they are right now, but as they were when the light we are seeing now was emitted. And because of the presence of a gravitationally bound object between y1, y2 but not x1, x2, the travel of light between them will not be the same; the light rays between y1 and y2 will have their spatial paths bent (gravitational lensing) and will be time delayed (Shapiro time delay) as compared to light rays between x1 and x2. So any comparison between the two pairs will have to correct for that.
photonkid said:
is the light that we receive from another star in our galaxy (or from the Andromeda galaxy) red-shifted due to the expansion of space?
No. Nothing is redshifted due to the expansion of space. See above.
A better way of asking the question would be, is the light we receive from another star in our galaxy, or from the Andromeda galaxy, redshifted due to the average geometry of spacetime caused by the average density of matter and energy in the universe as a whole? Then the answer is no, it isn't. All of the observed redshift (or blueshift--note that light reaching us from the Andromeda galaxy is blueshifted) from objects in our galaxy or our Local Group of galaxies--i.e., within the same gravitationally bound system as we are--is going to be due to the local spacetime geometry of that gravitationally bound system, plus the relative motion of the objects (the latter is why light from the Andromeda galaxy is blueshifted--that galaxy is moving towards ours at several hundred kilometers per second).