The latter is the primary problem here.
> Require last mile ISPs to do free peering with anyone who has traffic for their last mile customers.
What does "last mile ISP" mean here? DSL is no longer competitive, and most implementations of cable and fiber have no separation between "infrastructure provider" and "bandwidth provider".
> If you bring traffic directly to their local central office, they have to take it and deliver it up to the speed that they've sold to their customers.
What if their central office isn't connected to anyone else directly, because they get all their bandwidth and peering from one or more of the major backbones? Presumably they can say "go to those backbones", rather than having to start making peering arrangements with individual services.
> but decline and rely on peering (and install their CDN equipment across the street) if they try to charge monopoly prices
What if their central office doesn't have an "across the street" where you can put servers? Or what if they don't have a "central office", period?