My younger brother always had a really hard time with the constraints my parent set - he would watch TV and play video games in secret, and even sneakily used their credit cards to pay for the MMO he played (he was in his early teens, and my parents didn't give us any allowance- they'd just give us some money if we wanted to go out with friends, or if we wanted a book they'd buy it for us. That worked for me, but not him). At some point my parents did try to not set any limits on his TV watching habits etc., thinking he would learn to self-moderate, as you described; for those few years, he basically spent his life in front of the TV and video games, doing literally nothing else. He's in his early 20s now, and still having a hard time with such matters.
What worked for you may or may not have worked for me, and definitely didn't work on my brother; what worked for me would have probably not worked for you, and definitely did not work for my brother.
Humans are interesting creatures, aren't they :)
I had one or two good friends whose parents were more like yours, and I loved going to their house because we would play video games until 4am and eat pizza and drink unlimited Coca Cola. Doing this once or twice a month was like heaven for me, and my parents were aware of it but were fine with it happening- I guess they thought "as long as it's not in my house and not too often, it's fine". However, one of those friends did not do immensely well later in college/life, to which my parents respond "I'm not surprised".
How I wish those questions had clear cut black/white answers :P