It may shock you guys to know that I mostly agree with you. I live in initiative-happy Oregon, and we get the bad ones with the good.
One of the key tenets of Libertarianism for me is that the individual is protected from the larger society, but referendum and initiative can easily be used to infringe on individual rights.
Well, I believe this is somewhat of a misperception. Even when an initiative is passed that amends the constitution (and the Oregon Constitution is a mess by now), it still has to pass muster with the State and Federal Supreme Court. A very famous example was Pierce v Society of Sisters, back in the early 20th Century, when the KKK in Oregon along with the teachers union filed an initiative forcing all children into government schools (it was an anti-catholic measure). The initiative passed narrowly. The Sisters took it to the state court, where they lost, so they went to the US Supreme Court and prevailed.
Actually the courts now go too far in knocking out initiatives. Usually those that increase freedom have most trouble in court because the courts are essentially statist.
The initiative might be more a positive in a state that can't get anything positive through a legislature, especially a state that has something like FSP in it, because we would have such a strong influence on the initiative process. So there are some positive aspects for us. But we still would have to deal with the courts.