I think you make a critical point. God says that faith is what makes Man different. If we knew God existed, we would be on our best behavior always, since we would know He is watching (Santa writ large).
Instead, we are given a set of Moral laws that we follow, based on our Faith. Essentially, it boils down to us seeing God's love in the rules He laid out for us (C.S. Lewis' Moral Laws). We follow these out of Love and Faith, not fear of punishment.
God rarely took a personal form -- just enough to nudge us and make us aware if Him.
Just a few theological thoughts.