Setting off the torpedo in close proximity to Earth would have been catastrophic. That was a mammoth blast going on in the nebula. If Earth had been on the receiving end of that, Khan would have wiped it out, and humanity would have been an endangered species. Not to mention the UFP would have been seriously compromised. Even in death, Khan could have destroyed everything Kirk stood for and left what was left behind at the mercy of their enemies. No matter how a Khan victory scenario could have played out, I can't see it ending well for the UFP in any case. Khan would have done them serious damage had Kirk not taken him down.