I like your idea, but I wouldn't stop where you did. I would like to have alliances much more integrated into the actual faction system, right now alliances are similar to factions, but they don't get the advantages or disadvantages of being one.
Making the ownership of a sector changeable would be great since empty sectors could then be taken over by alliances, converting yellow or even empty sectors to green ones on the radar. This would also allow to get an actual war against another faction, taking over their former sectors and integrating it into your alliances territory.
Factions that hate your alliance should also start sending ther attack fleets like they would do when attacking another faction instead of just spamming bounty hunters on your sectors.
A living economy would be great, but the even greater thing linked to it would be the "respawning" of destroyed sectors. Many players like to get their money and ressources from raiding entire sectors leaving nothing than a tag on the galaxy map wich states that there has been something there in the past. Factions should start rebuilding such sectors, the recovering speed should depend on how good the economy of the faction is at the moment, allowing raided sectors to slowly recover (and be raided again :P). Also if a player really wishes to, he should be allowed to take out a faction completely by destroying everything it has, removing that faction from the map and leaving its territory to be annexed by another faction or the players alliance himself.
In my opinion a system like this could make the galaxy truly alive if done well. :)