Do you have to have a palace in your starting city? I started my mod with fixed locations for starting cities as opposed to putting a settler in a square and expecting the player to build a city there on their first turn. I started each city with no improvements which means no palace and you can't build a palace until you upgrade to some other form of government than despotism. I haven't started play testing yet but it looks like you can't do scientific research without a palace. Is this right? Has anyone tried this before?

No, you can't really do anything without one. No money either.