There is one gameplay/mechanic issue I see in this whole question and that is that the BM worlds are isolated, so once you effectively control an island, there is nowhere challengers could come from except from within.
I honestly never thought that would be possible, the islands are pretty damn huge.
Well, while the CE/Tara federation does not exclusively control the entire island, they have enough control of the island such that they themselves are permanently untouchable so long as their internal politics remain true. They are thus able to exert overt influence on the rest of the island because of their military predominance. The rest of the island has already attempted a federation vs non-federation war and lost. Even though they should have likely won based purely upon military statistics they did end up losing and are in an even worse position now. Under the current federation, it is nearly impossible to stop them.
However, much props goes to CE's military leadership and organized military. Even when outnumbered they've managed to win time and again. Yet, that means that now that they have the numbers, it is even more difficult.
Then again, CE and Tara alone once isolated could not hold onto the situation that they currently have. Should their current allies (Talerium, Coria, and Strombran) or even two of those allies turn against the federation, the federation couldn't stand. However, the political situation means that any of those allies that chose to abandon the CE/Tara federation would then be the "odd man out" in any new alliance they joined. This means it is by far safer for these allies to remain with the federation than to go it alone. It is therefore the political reality of the IC interactions that while CE and Tara technically can be defeated, the impetus to do so is left in the hands of those who would be directly harmed by allowing it to occur. Long-term the allies may benefit, or in the short-term they may just be ripped to shreds.
That's the beauty of the CE/Tara federation. Through a combination of military might, political alliances, and simple realities for their buffer states, they've built up the most secure and formidable coalition on Atamara. One that cannot be defeated or divided without some characters making actions which aren't necessarily in their full best interests.