It's 2011, not 1787. The US is a vastly different country than it was when the idea of States Rights was created. Would the level of innovation that you describe be possible in a country that does not have a strong central government? Could an individual State put someone on the moon? Would sectors of the economy that are closely associated with a specific area (Technology – CA etc) still be as prosperous without a central government? I am skeptical.
Abandoning the Federal Government because it is dysfunctional seems short sighted. Personally I do not see how the US can prosper in the modern world without a central government. We need more political compromise and a more consistent government agenda, not a shift towards one political agenda. Government should represent everyone, not just the 51% of constituents that elected them this term.
Also, suggesting that human rights should be legislated at a State level is absurd. It astounds me that a Libertarian such as Paul can so proudly proclaim that government intrusion is wrong, but then defer to the State on issues such as gay marriage and abortion. Legislating religious views at a State level is no different than doing it at the Federal level. Rob Paul style libertarianism only brings “freedom” for some.