Is there no way to apply for a provisional licence in person and not have to submit my passport by post?
No, unfortunately, there is no way around sending off your passport - you have to do it if you want the provisional licence.
It is possible to make an appointment in person at a local DVLA office to submit the application (someone here went to the office in Wimbledon, London recently), but they still have to send off your passport. I believe it only took a few days for the other person to receive her passport back though.
I am petrified to send off my passport (I will even make an appointment with the US embassy to get a new passport when that time comes) as I endured 7 months of the UKBA holding my passport before issuing my EEA2 residence card in it (so no travel and no documentation proving my right of employment even though by law I did so, but no one cares).
You know that if you had wanted it, or if you wanted to travel, you could have requested your passport back from UKBA at any time during those 7 months without it affecting your application, right?
For EEA2 residence cards, you can request your passport back while your application is processing without it affecting anything (this is not the case for UK visas, where requesting the passport back invalidates the visa application). Also, UKBA should have sent you a letter of confirmation of your EEA2 application, which would have proven your right to employment while the EEA2 was processing.
If for some reason DVLA loses my passport, I would have to reapply all over again for my EEA2, again not be able to leave the UK and not have that precious card displaying my right of employment in the UK (which I need as I'm currently looking).
I have never heard of the DVLA losing or not returning anyone's passport before - hundreds of people on the forum have sent off their passports to DVLA for provisional licences with no problems at all, usually receiving their licence and passport back within a couple of weeks.