Things were based on religion back then. Hinduism Vs Islam was the sole reason why Pakistan and India came into existence. But nowadays, ethnicities are the deciding factor.
I don't believe what you're proposing would've been any good for the region. The more separate states we would've had, the more blood shed would have followed.
Understood about the religious demarcation and it even reverbiates to the current situation today (eg Kashmir).
Europe is actually a very good "future model" to look at, in my opinion. What started as empires pre-WW1 with the French Empire, British Empire, German Empire, Austro-Hungarian Empire, Ottoman Empire and Russian Empire has broken down into dozens of nation states. Europe is now and for the forseeable future more peaceful than it has been at any other point in its recorded history (except when it was totally engulfed by a single empire, be it Roman or otherwise - but I doubt anybody here wants that). It's really an all or nothing situation in terms of stability and peace.
I think the Indo-Pak rivalry is a major unifying factor in each respective country as well. If you look to history you notice trends... external enemies provide internal solidarity. Barring that, you can make people too greedy to oppose you by providing them a high quality of life. If India and Pakistan had a stable, long-term peace, I think internal strife in both countries would increase with separtist movements growing in popularity. To what degree, I can only speculate...