I agree that is good for a game to have a sort of base for the player characters. Where they can find haven, help, info, make role playing ties with NPC and such.
What I don't like is it to be a former city-state.
Given the nature of the setting, I think it would be much more logical to be a slave village, or a satellite town of a city-state, or a trading outpost, or even a district of a city-state.
The sorcerer-kings are extremely powerful but they are not omniscient, nor do they care about all the minutiae. That't why they have templars around.
At heroic tier, players are likely to meddle with templars, and not with a SK. Templars are even likely to try to keep the exploits of the PSs hidden to the SKs ears, in order to avoid punishment for their failures.
From paragon tier on, I guess the fame of the PCs is big enough that they will be at odds with at least one SK anyway, and they have a lot more powers at their hands, so they don't need a free city anymore... unless they are the ones to fee it.
In the end, I think starting with a free Tyr deprives from the feel of the setting. You should explain:
- why is it free?
- who was so powerful to kill a sorcerer-king, which are supposedly the most powerful entities short of the Dragon?
- how can the new rulers defend it from ALL the other sorcerer-kings (if there is something I can think that that can make all the SK agree is the killing of another SK - swift and brutal repression before someone can think that other SKs might suffer the same fate - and then take their stuff)?
All of these are great points. But they also explain why Tyr becomes such an interesting city.
How *DOES* the city remain safe from other Sorcerer Kings? In the books, they go to war with Urik and fight to a draw. In an actual campaign, it might be something different - negotiations, tribute, and all that.
Personally, I'm fine with Sorcerer Kings being disposable. I'm toying with the idea of having there be dozens of city-states, and the seven in the setting are just the ones that happen to be in the region (the original boxed set mentions other states to the north and south, though the revised set reveals these are really just Eldaarich and Celik).
I like the idea of most SK's being in the mid Epic levels - super powerful, but not unstoppable. Of course, one of the rules I'll be having in my 4e DS is that defences do not scale with level - a level 25 monster is only slightly harder to hit than a level 1 monster. This makes the epic bad guys much more squishy in game terms - that awesome sorcerer king is still, unfortunately for him, vulnerable to the little man.
A free Tyr that is a happy place does weaken the setting. However, a dangerous and unhappy Tyr can really reinforce the setting. After all, one of the best ways to show a setting's themes is to break them, and then show what happens.
Sure, Tyr's free, and they got rid of their SK. Now look what's going on - the Slaves are free and burning the city to the ground, the nobles are raising armies to loot the city and are busy killing each other, and the templars use their power completely unchecked. The place is absolutely chaotic and uncontrolled.
Furthermore, the government needs to send what little iron and silk it is still able to produce (how do you fund government works when you've made slavery illegal? Especially when you have no funds to reward free labourers? They better find a way to do that, and soon!) as tribute to other city-states, all of whom are looking at Tyr with greedy eyes.
Then there's the fact that slaves are fleeing other city states to come to Tyr. Not only does Tyr then have the problem of trying to deal with these refugees (who are probably not going to buckle down and do hard work - nope, they're gonna PARTY, and steal what they can to do so), but there's also the problem that even city-states who might be willing to trade with Tyr otherwise are now upset that Tyr is poaching their population.
I can go on, but the general point is this: breaking the rules of the setting can actually reinforce the setting, in this case. And Free Tyr actually shows WHY Sorcerer Kings are in power. Why they should be there. And that solutions to the contrary are not always happy. Plus, a free Tyr generates so many adventure possibilities. Not to mention the fact that it almost has an "American Revolution" vibe to it, which is definitely cool.