I think it would be most realistic if the senate and the main minsters didn't get involved in every day to day decision a system lord or planetary governor makes. In times of economic crises they would vote to withhold resources for construction projects (put queues on hold) and might direct the various planets to build certain things.
The System Lords I think will be the most interesting position in this thing. They should have the ability to make autonimous decisions and decide whether to follow the Empires directions or not. Of course a System Lord that disobeys too often runs the risk of being replaced. So it will be a balancing act on their part.
Revolts would be very interesting. Some ships Generals could be convinced to follow the system lord with promises of larger ships and fleets to command. Maybe be given a planet of their own. This has so many intersting options in it. It could be fun to play even without AI.
Geoschmo