I just want to add another voice to this. Really, reading this, you sound very much like my parents. I'm a 21-year-old home school and now college alumnus and I've been thinking some of these same things.
It's not that my parents gave completely free reign, it just that rather than actively directing everything, they backed off somewhat and left a lot of direction up to me. It's not that there weren't rules, it's just that the rules were reasonable and reasonably explained. Of course there were disagreements and children being childish, but there was also respect of their authority, which I think is something horribly lacking in kids today.
Any 'rules' my kids had were rooted in reality, not in mom's neurotic personal crap. "Don't run out into traffic" wasn't some "Because I won't love you anymore/what will the neighbors think?/how can you embarrass me this way???" kind of rule. It was a "because cars will hit you and maim or kill you" rule.
Two days before my 2nd child was born, my then 2 1/2 year old stood between me and his father, each of us holding one of his hands, and was told "don't cross the road without us". Being a bright, curious, strong-headed kid, this meant he promptly pulled away from two adults and dashed out into the road just to see why we saying that. He came so close to being hit by a car that he cut his finger on the side of it (well, he was hit by a car, but only his finger). The driver likely had no idea how close he came to tragedy that day. My son was so short, I don't think the driver ever saw him. I spent the next year standing on the side of the road for up to 20 minutes (in the heat, the snow, the rain) waiting for my oldest son to conclude it was now safe to cross. He needed to learn to use his own judgment to safely cross the road.
I raised my kids with an eye towards producing functional adults who could make their own decisions. That often meant putting up with inconveniences so they could internalize valuable decision-making rubrics instead of simply doing as they were told -- which really doesn't work. Even assuming I had perfect judgment (which I don't), what happens when I am not around to tell them what to do (like at daycare or school or after they grow up and move out)?
It's not that my parents gave completely free reign, it just that rather than actively directing everything, they backed off somewhat and left a lot of direction up to me. It's not that there weren't rules, it's just that the rules were reasonable and reasonably explained. Of course there were disagreements and children being childish, but there was also respect of their authority, which I think is something horribly lacking in kids today.