Yes, the Dalai Lama is essential for Tibet, because he is a local, regional, and international example and peacekeeper. The Dalai Lama is surprisingly involved in politics as well as setting a spiritual example for the people. With such a strong example, Tibet has avoided conflict and has had relative peace. The Dalai Lama is essential to this peace and stability.
The Chinese rule of Tibet is no picnic or something we should praise, but neither was the Tibetan feudal theocracy. The rule of the Dalai Lamas was brutal and merciless, and was so bad the Chinese rule looks like a blessing in comparison. That's how bad it was. So no to theocracy or communist dictatorship.