Dondi,
I don't think it's refusing G!d's reign in a literal sense so much as an almost subtle form of idolatry, but one that is tolerated. It's trying to be like the other nations. G!d is continuing to reign but he has an earthly counterpart through whom he reigns. And as you brought the Torah text before you can see that it's discussing having a king already and laws for the king. How would those commandments regarding a king possibly be fulfilled without a king over Israel? The people are commanded specifically to set a king over themselves. That means that in order for them to be obedient to G!d they must set before themselves a king.
And you're absolutely right that there were problems with the kings, even David. I don't think that's saying that kingship is dependent on obedience to G!d's commandments. It says:
"If ye will fear the LORD, and serve him, and obey his voice, and not rebel against the commandment of the LORD" (If you are obedient to G!d)
" then shall both ye and also the king that reigneth over you continue following the LORD your God:" (then you and the king will be obedient to G!d.)
It's not saying if they're not obedient the king won't be. But it is saying that if all of them are then the king will be as well. I think it's more a way of saying, in the context of the rest of the chapter, that having a king isn't a reason to stop following G!d and that G!d is still above the king.
And I said all that to say this, which brings me back to the Messiah. If the Messiah is going to establish peace throughout the world, it would depend on Israel's obedience. How will he accomplish this if even great kings like Saul and David were prone to failure? And is this restoration forever?
Two possibilities: world's all good or world's all bad. If world's all bad, difficult birth. If world's all good, easy birth. The messiah himself is just a person and is not supposed to have any super abilities. The heavy lifting is really for G!d to do. I think I mentioned in another thread that there are some opinions the nature of humanity will change such that the only possible sin is a cheyt, an unintentional error. But that's not the doing of the messiah. That's the doing of G!d. Even in that future situation, the messiah is still more of a figurehead.
Neither Saul nor David's reign were about world peace. And traditionally, yes, it would be a permanent change not a temporary one.