I think it's not just squalor that is the problem. It's the total disorder, that prevents you from 'doing the Risk manouvre'. The Risk manouvre is that as a last resort, you cash in all your cards, get a ton of armies and go on a hunting trek through the whole map.
That is unrealistic, and Rome proves it. So yes, it makes the game more cumbersome, but it is more realistic.

Although on the other hand, although the effects may be okay, the causes seem a bit unrealistic. Now I'm not a historian, but I didn't know much about squalor in some cities, or about how much influence the distance to capital had... but I think there are better (more realistic) ways to implement them.
Once again, a logistic scale for distance to capital would be better I think. Being 2500 km or 3000 km from the capital wouldn't matter much, but 250 or 300 does. So a logistical scale seems more appropiate. And maybe the complete opposite (an exponential scale) for squalor. If you have 25k people in a city and it increases to 30k, lots of those 5k people will live poorly and increase the squalor. Whereas going from 5k to 10k wouldn't give such an increase, since then there might still be enough room and services for everyone.
The balancing should be the same as now, in a way that a 25/30k city or 50/60point distance to capital would be the same as in the current lineair system.

Right now, I don't mind the effects (the disorder), but the causes seem a bit weird.