I disagree with your scenario: I've experienced numerous periods where I've been libeled, suffered a range of personal attacks and then been threatened with bans for daring to handle a moderator the way they've been handling me. In other words, they start it, I reply and then I get threatened. In the case of the poster being the first to use an insult, the system is empowered to function correctly - the poster may receive an infraction or a ban, or the mod may choose to tolerate it. The latter is their choice; similarly, posters may choose to tolerate each other's behaviour. That is their choice.
In the (and I amuse myself with the language I'm using here) 'reverse' case where a mod just flies off and libels posters, no such power exists and none will be implemented; the mod may get a little handslap or, more often, their prejudicial call on the poster is reversed by a sane and responsible mod, as I've had happen several times. In that case, which is my experience of SF, the mod may then fly off on a tantrum which is essentially about not being able to express the full limits of their power unjustly. That's the problem here. I can't speak to the experience of all posters, but I see this a lot. I use 'libel' above in a specific way: insults I can tolerate, but not outright fables about my character for the sake of winning from an untenable position.
So what I would like to happen is for mods to be subject to the rules that posters are subject to, although I'm intrigued by SG's comment about term limits. At its core, of course, its really about the people in the system. People would accept a fair-minded dictator, dictator though he or she be. Several of the mod staff carry implicit power with them; do I struggle against them? No, because it isn't used unevenly, maliciously or unfairly. If it were, and I saw evidence of same, I'd stand up against them also. Fair is fair.