There is no part of the existing federal Nanny State that wouldn't be less onerous if it were broken into 50 separate nanny statelets.
Freedom is Right, but freedom doesn't work merely because it's Right. Freedom works because of the competition created by decentralism and the right of exit. You can have improved competition without having perfect freedom, and the fruits of that competition become the argument for even more freedom.
Arnold Kling has a recent post up at http://econlog.econlib.org/archives/2009/08/what_is_real_fr.html arguing that real freedom depends on having the choice of exit, rather than having a democratic voice.
Libertarians should always push for decentralization of government authority, even if we think that other people (e.g. "dixiecrats") are using this means for a different end. If we really believe that freedom works, then we shouldn't fear competition between jurisdictions that can vary how much freedom they allow. If our liberties in our local jurisdiction can only be protected by the standards of a distant central government, then our cause is already lost. A distant central government will always be captured by rent-seeking, thanks to the diffusion of its monitoring and the concentration of its benefits.
Economists have a name for the result of having the choice of exit: http://en.wikipedia.org/wiki/Tiebout_sorting. Another name for it is "voting with your feet".
