My old DM tried a game like this expect we were all kings of our own lands on a continent. It was great for about 3 weeks, then the cloaks were on and daggers came out. we were at each others throats pretty quickly once we realized we were each running low on resources.
I think to much control over things leads to everyone trying to gain more control.
It sounds like a really cool idea and with the right group and forward thinking it could be great.
although having the village eventually enter into civil war or break off with different areas for each god or something would be neat.
"No amount of preparation can compare to pure dumb luck"