Yeah, I am concerned about the plausibility of that. The reason for its existence was that the Ottomans managed to transition into a democratic confederation after their complete loss of all Balkan possessions in this timeline's first world war. Their Republican allies of France and Germany played a big part in the democratization. In present day there's many separatist movements and terrorism related to separatism. The federation is at roughly OTL Poland level wealth and it has decent democratic institutions. This arrangement seems way "too good to be true", but I think it's too late for me to retcon that.
I don't think it's all the implausible. All the things you mention seem very reasonable - including the problems involved
The biggest problem is getting the Young Turks to agree to having a state that's dominated by Turks but not explicitly Turkish.