I think Kinetic Capsules should be able to also level up resonators and XMPs.
in General
I think Kinetic Capsules should be able to level up your resonators and XMPs apart from the 4 Ultra Rare mods. For example, 5 L1 resonators and walking 8km and you get 1 L2 resonators, and etc. I have a lot of useless L1 items and it would be nice to be able to level up your items.
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If you were around for the Kinetic Capsule event a month or so ago there was the option to convert 40 L4 resos to 10 (up to) L8 resonators (depending on your level). So there may be more options to do this in the future.
For now, recycle those low level items for XM, and use that XM (as well as from cubes) to keep your portals charged.
While I agree there should be a few more options for the capsule (my personal preference would be CS -> RS, CMH -> RMH, CHS -> RHS) at some point it becomes too many options.
I'd say something like 16 R7s -> 4R8 or similar, for the higher level resonators would be good, but L1s and L2s are probably far too low for the average player to use. Since players can make a P5 alone normally, and currently a P6, producing R8, R7 and maybe R6s from KC's might make sense, but all the way down would create far too many options no-one uses.
As a method of "disposing of junk" you'd be better recycling the resonators you don't use, and hacking higher level ones.