The exact form of organization initially chosen had a history of failing and it gave the federal government no means to fund an army, therefore no meaningful means to raise an army. So that was soon abandoned and the agreement was updated.
No, it's not crazy talk for the Southern states to believe they had self determination that the Northern states had no right to interfere with. That was the original arrangement agreed upon by the various states -- state typically meaning independent nation and not "some layer of organization above municipal and county but below nation."
Over time, our conceptualization of the organization of the US has changed. Originally, the states were conceived of as separate nations allied for one purpose: The ability to adequately defend themselves to preserve their independence.