I prefer 4.Nf3 followed by 5.Bg5 before the exchange.

Better is either 4.Nf3,or Bf4. The text move 4.cxd5 is very good but gives black an easy and free game.

I recall the very first time I faced the Grunfeld over the board, I played this - this at a time when it was regarded as a blunder. I soon discovered the downside, and had to strain every nerve just to draw that game (with a major piece attack down the h-file)...

7.Nf3 leads to unnecessary difficulties, i prefer the safe 7.Bc4 c5 8.Ne2

paulmorphy91, the complications following 7.Nf3 doesn't necessarily favour black. &.Nf3 is commonly played now.

I feel black would be better attacking the centre now with 7....c5

You may be right. Reuben Fine in "The Ideas behind the Chess Openings advocated an early c5, in the exchange Gruenfeld in order to prevent white from stopping c5 with Ba3, but it was later found out that Black could just play Nd7 to prepare c5 is reply to Ba3. A delayed c5 stops white from playing Bb5+ in reply to c5.

The reason why 7.Nf3 was considered not very good was that the bishop seemed to want to go to c4. In the game I mentioned, I even considered moving the bishop first, as I could see the knight would prefer the e2-square, but the 'knight before bishops' thing sort of got in the way. My instincts were alert anyhow! This more restrained development is solid, though.

In some variations, the Be2 supports the pawn storm h2-h4-h5.

Can Nd7 be a plan? It defends c5, if taken (once c3 is defended), and prepares b6 - Qc7 - Bb7 line.

It is a plan! There are games where black has played Nd7 in this position

so the point of the sac is the removal of Black's strong bishop and grabbing more space?

Yes!

There's more to the sac than just the pawn, too. Black has been given what looks like a free-running 3-1 pawn majority on the Q-side. White gets a strong majority in the centre and more than the lion's share of that real estate. Further, there is the small matter of the dark-squares on Black's K-side, and the g-pawn presenting a target...

Accepting the sac is very dangerous for black. White can play h4 and kingside expansion, or Qh6, Ng5, Rb3 then Rh3.

The tin opener. He want's to open up Black's King position like a can of beans...