One thing many forget is that God did not WANT to establish a kingdom in Israel. He warned them about the abuses that kings would institute.
At the time of Moses, God established what looked to be an independent people united by a judge/judicial system that tied into their religious system. When they stayed close to it, they stayed united and able to overcome external enemies. When they departed from it, they fragmented and were ripe pickings for external enemies.
Imagine our system of judges with no politicians and parties.
Assuming a reasonably moral, reasonably godly people, and reasonably moral and godly judges, yes.
That is actually the key. Its not the structure, its the character of the people themselves. Given a moral and godly people, almost any system can work. Without that, every system will ultimately fail.
Still, its clear to me that, as you say, God intended power to be well distributed and close to the people themselves. He did not want power to be centralized in the hands of any king or bureaucrat.
Freedom implies that you govern yourself, and the capacity to govern yourself is a moral quality. If God is king, you don't need an earthly king, just judges and clerks to referee the inevitable disagreements among otherwise good people.