The hill shouldn't be a problem, trolleys have been used on steep hills in San Francisco and other cities.
San Diego is already studying a proposal to extend the trolley to the Park and Zoo,
as well as other extensions in the long term:
http://en.wikipedia.org/wiki/San_Diego_Trolley#Balboa_Park_Streetcar_Line
Balboa Park Streetcar Line
MTS began work in March 2011 on a study to evaluate the feasibility of reconnecting Balboa Park, the San Diego Zoo and Downtown San Diego through a fixed-guideway, electrified streetcar line.[16] The project study corridor runs between the City College Trolley Station area, and Balboa Park, in the vicinity of the San Diego Zoo;[17] An alignment similar to the proposed one was last served by a streetcar system in 1949 on lines 7 Park Boulevard-University Avenue to East San Diego & 11 Park Boulevard-Adams Avenue to Kensington.[18] The Committee is also evaluating what types of streetcars to use, the possible options include the future 57 Ultra Short 2011 S70s in the "Modern Streetcar" category, and the Restored PCC Streetcars from the Downtown Silver Line in the "Vintage Streetcar" category.[19][20]
See also: Silver Line (San Diego Trolley)#Balboa Park Streetcar Line
2050 Regional Transportation Plan
The San Diego Association of Governments released a draft of its 2050 Regional Transportation Plan in April 2011, which was approved in October 28, 2011.[21] Significant expansion of 156 new miles of Trolley service is proposed in the 2050 RTP, including a north-south Trolley corridor along the I-805 corridor that would connect University City, Kearny Mesa, Mission Valley, Mid-City, and southeastern San Diego, National City, and Chula Vista. Intersecting this I-805 Trolley corridor would be three new east-west Trolley lines between University City and Mira Mesa; from Pacific Beach to East County via Kearny Mesa and Mission Valley; from downtown San Diego to SDSU via the mid-city communities, and a tunnel system in the downtown area.[22]
Here's an interesting article about the Park and Zoo extension:
http://sduptownnews.com/trolley-madness-from-uptown-to-downtown-trolley-fever-is-spreading-but-getting-the-project-from-concept-to-tracks-is-another-story/
The Park and Zoo extension reports are here:
http://www.sdmts.com/streetcarstudy.asp