Unfortunately when Islam gets to the state level it tends to end up being a not all that pleasent thing for those that do not believe in Islam. We have been moving away from theocratic states in the west for quite a while now and I think we are better for it.
I would agree with that. Theocratic states are historically nightmare places, the few exceptions however were within the Golden Age of Islam, with city states such as Cordoba and for a short while Jerusalem, where all races, creeds, and peoples were invited to learn and live together.
Unfortunately these things do not last very long, and overall Religion shouldn't involve itself in Statehood to the degree it does in countries such as Iran and Saudi Arabia.
Religion's place is seeing to the spiritual needs of the community, the community itself should see to it's Governance.