I think it is more accurate to say that the powers aligned against the potential regional hegemon, who responded with alliances with the willing, regardless of whether they were worthwhile allies.
If you look at the treaties starting in 1848, you see a slow drift from everyone-balance-against-France to everyone-balance-against-Germany. The UK's century or more long running conflict with France transforms into a very close alliance in less than a generation.
Let me put it slightly differently: I think best explanation of Germany's willingness to ally so closely with Austria-Hungary (to the point that a dispute which had no interests for Germany could initiate WWI) is best explained as a unwillingness of anyone else to ally with Germany. Sure, the Central Powers allies make rational sense to Germany once they are all the possible allies. But the historical fact that no one else was willing to ally with Germany cries out for explanation (and France, Britain, or Russia would have maximized their chance to win any European war by allying with Germany).
Your attempt at an explanation is interesting, but to my knowledge, doesn't fit the facts. The nations weren't unwilling to ally with Germany, in contrary, the German Emperor didn't want to maintain the alliances that had been created by Bismarck. For example, Russia wanted to renew the Reinsurance Treaty in 1890 (http://en.wikipedia.org/wiki/Reinsurance_Treaty), but Germany didn't.
The standard view of Mutually Assured Distruction (MAD) is something like:
Occasionally people will reply with an argument like:
This is an anthropic argument, an attempt to handle the bias that comes from a link between outcomes and the number of people who can observe them. Imagine we were trying to figure out whether flipping "heads" was more likely than flipping "tails", but there was a coin demon that killed everyone if "tails" came up. Either we would see "heads" flipped, or we would see nothing at all. We're not able to sample from the "tails: everyone-dies" worlds. Even if the demon responds to tails by killing everyone only 40% of the time, we're still going to over-sample the happy-heads outcome.
Applying the anthropic principle here, however, requires that a failure of MAD really would have killed everyone. While it would have killed billions, and made major parts of the world uninhabitable, still many people would have survived. [1] How much would we have rebuilt? What would be the population now? If the cold war had gone hot and the US and USSR had fallen into wiping each other out, what would 2013 be like? Roughly, we're oversampling the no-nukes outcome by the ratio of our current population to the population there would have been in a yes-nukes outcome, and the less lopsided that ratio is the more evidence that MAD did work after all.
[1] For this wikipedia cites: The global health effects of nuclear war (1982), Long-term worldwide effects of multiple nuclear-weapons detonations (1975). Some looking online also turns up an Accelerating Future blog post. I haven't read them thoroughly, and I don't know much about the research here.
I also posted this on my blog