There should absolutely be retail on the Walnut Street side, and maybe even along 40th Street too. There are plenty of quiet, Ivy League spaces elsewhere on campus. Penn needs to continue reactivating its borders with the city around it, instead of building any more dead all-institutional streetscapes.
I am sure there is a way to put retail facing out, and a fully separated dorm behind and above with entrances off of Locust.
(Penn grad here as well, if we're all flashing credentials
)