On the one hand, I like this idea because it is very difficult for even a sizeable group of players to take over a realm. It might be much easier to take over a Duchy.
On the other hand, if Dukes will still only be appointed by a King, it will just create a tool for a King to ensure Duchies are held by his cronies. This will effectively kill any tension between Dukes and their monarch. If we'll make it so that Duchies could be seized by rebels like realms it could also end in a disaster.
I would have agreed if we had a lot of players but with so few players, 1 or 2 people can just protest a duke out.