The thing is, if happiness doesn't exist to limit your number of cities, then some other mechanic will, otherwise there's just no limit to the number of cities you can build.
I think they don't allow razing of capitals because it allows the civ that loses its capital the chance to regain it. It ties into the requirements for Domination victory as well - capture all capitals. So if they allow capital razing then they'd have to tweak the settings for Domination victory.
Oh I know all that and your right. Still it is interesting to hear the devs thoughts on questions we come up with.
The things that irks me is having to keep the capitals you capture in domination. It just stupid to have to keep all those places spread throughout the map. They should just have it that if your capital is captured, you lose it and another city in your empire is then relegated to that role. If you have no city left you lose. You are dominated. However, if you recapture your old capital city then you should have choice whether or not to give it that staus again.
They could make two victory conditions, one could be Capital Domination, another could be Civilization Domination. I also, do not agree with the idea of having to leave your enemy in their one remaining city. Many of you may not agree with me, but keep in mind, I started with Civ 2 and we gave civs in that game no mercy. Mercy is for the weak.

And I do love to play domination, but we need a conquest victory condition for us old warmongers. Conquer a certain percentage of the map and you win, that type of thing. Thats all I ask.
One other thing I wanted to say. I do like playing where you turn off the victory conditions and play a point victory game. Thats a lot of fun. Although my first game on Emperor is all victory conditions, which I am in the middle of now. Its harder than king, but easier in some ways because the other civs have money for luxuries you sell. The hard part is that they have so much cash and can sign research agreements at will. Many times I cannot do this, but I need to get better at this level of play.