The forgotten realms is, in my opinion, far too naive about these things. In my opinion in such a universe, the only way for such an outcome to not happen is if magic is nowhere near as rare as it supposedly is in the forgotten realms - if essentially everyone has it. That way there are plenty of people who can act as a check against the power hungry, because power is essentially democratized.
Hmm. Okay first let's agree that the realms is a silly place that probably wouldn't operate as written with the rules as written. But let me make a defense lawyer's case for the realms:
If you did make a magical tyranny you would then become the subject of Bane. And that's a pretty awful thing to be as the Zents found out. There are consequences to forming tyrannies in the realms.
Once you establish yourself as a tyrant you become the target of the chaotic forces -- both good and evil. Use you fireball to hold the village council ransom and yourself targeted by harpers or the clergy of some church.
The idea that inequality would lead to tyranny assumes a certain theory or human nature that doesn't apply in the realms. Alignment determines actions and only certain people are drawn to dominate. Elminster -- like Gandalf -- could dominate but isn't interested in doing so.
And you've got the lessons from Nethril -- Nethril operated as set of tyrannical city states just as you described. But their form of organization led to their downfall. So the lessons of history also serve as check.
