I think Picard should have gone ahead with the plan to destroy the Collective.
It wasn't just the Federation at stake, but the entire galaxy. I think making Picard very ethical was interesting writing, but I think Picard's moral nature got in the way here.
Another thing is that the whole reasoning why it was a wrong idea came from Beverly, and I think her characterisation was often weak, since she always used to judge things from Earth/human morality. She could never be objective in her analyses of situations.