What do you guys think about that idea?
Imagine a theocracy where two religions can spread and all the rest are suppressed

But then is it really a Therocracy?

2 State religions could work but it would be difficult. I quite like the idea but it would need to be balanced. e.g. opposing religions have an influence in each city and there can be riots if one religion is unhappy.

Hmmm, seems like Turkey qualifies. The official state religion is secular humanism but the real state religion is Islam. (Say if some Europeans stop capitalizing "Christianity" will they have the balls to stop capitalizing "Islam"?