Time compression and faster-than-light-speed have the same effect of "accelerating the game" and reducing the "feeling of vastness of space"
The effect is not the same - time compression can be turned on and off completely transparently to the gameworld. It has no effect on the mechanics since it's not a part of the mechanics.
FTL, on the other hand is necessarily on when you're going somewhere, if you turn it off you will arrive much later.
FTL also has numerous undesirable side effects on the internal logic of the gameworld and pacing of the game which time compression lacks for a good reason - it's usually not even a part of the gameworld, only of an interface between the gameworld and the player, frontier's silly fluff on stardreamer notwithstanding.
First, sufficiently precise FTL is indistinguishable from a doomsday weapon. Granted a conventional spaceship can make a decent RKV, but with tech level of Frontier, you can reasonably defend yourself against such threat, while a necessarily inertialess FTL would be essentially unstoppable. If an FTL drive allows for precision sufficient to avoid the need for time compression it's sufficiently precise. Simply put, any sufficiently advanced technology introduces a lot of unforeseen consequences, each with their own unforeseen consequences, each... etc.
The effects of such causal explosion on the unprotected internal consistency of the gameworld is comparable to the effect of salvo from GAU-8/A "Avenger" on unprotected human flesh - mangled, barely recognizable shreds dispersed across the huge (plot)hole. I would prefer E4 to avoid the fate of ST where the storywriters had to run around in circles, contradict themselves and engage in all things zany producing copious amounts of gibberish known as treknobabble in the process only to find a way for standard Starfleet technology to not be able to solve the problem in a risk-free unexciting manner in under 5s.
Second, FTL affects pacing a lot. In Frontier a week could pass between ship's departure form one system and arrival in another, additional several days between its arrival in the system and its arrival at its port of destination. This allowed for much more deliberate gameplay as well as helped underline how freakin' big the space is. You know, the feeling you'd probably want space sim to convey. IWar2, using the FTL mechanics you described, on the other hand, completely missed this feeling of vastness - you didn't have to spend days hanging seemingly motionless against the black sky to just build up your speed. Despite of the mighty FTL making the pacing almost slapstick the RL travel times in IWar2 were still noticeably longer than in Frontier (because the time compression wasn't there) and were a major annoyance in this game.
Third, it renders Newtonian flight inconsequential, so, again, unlike time compression it strikes a heavy blow against the game mechanics and gameplay - again. When you fly across the system on conventional drive, you have to accept some things. For example, if something happens that would make you want to change your course immediately - tough luck. It doesn't matter if you would pass your newly found object of interest in the distance of 100m or 100AU - it's equally inaccessible. If the object is not particularly time sensitive, reaching it would still mean several days of course alterations and heavy expenditure of fuel. Feels like space, unlike being whisked from one place to another by an FTL fairy.
Only time compression is a bit ridiculous in a single player game
Only as much as not having to care about regularly vacating your character's bowels in an RPG is.
It allows you to skip the boring and pointless without disrupting the flow of the game or its logic (would you opt for some super-duper hyperdrive in a realistic flight sim too?).
Arguably, the time compression is superior to all the methods of skipping the pointless as it allows you to skip stuff without ever being removed from control.
Piracy does not depend on slow police (pirates for instance could disable the transmissions of the ship indicating pirate status at secluded "pirate stations" for the cost of not being able to dock/trade/refuel/equip at regular stations), but police would still be slow enough to allow piracy even with FTL if it is not IFTL (incredibly faster than light).
Again, logic.
I won't attempt exact math here, but a fully loaded Asp has about 3GJ of kinetic energy after giving one second full burn. Idiotically assuming no energy lost with exhaust, it therefore needs at least 3GW powerplant on board. How hard can such a powerplant be to detect in 4K coldness of space? How about several such powerplants shooting each other with lasers? Thermodynamics is a *****.
The pirates can scramble the signals and such to not be identified, but a shootout will, and with powerful FTL, the police will be there in minutes assuming some FTL sensors, but even if pirates could scramble FTL communication (assuming it even exists), you could use FTL equipped sentry drones, even if they would have to carry the messages physically.
No such problem without precise FTL.
Additionally, something that has to be balanced between too boring gameplay and too fast pacing will never prove superior to something that exists outside of the game mechanics and can therefore be arbitrarily powerful without ever affecting anything. Without IFTL your game will be boring, with it - stupid. My game has up to 10000x time compression, can very well have 1000000x should it prove necessary.
Another solution would be not to have any police in the game, or only in wealthy systems.
And the reason for it would be? If a random punk can purchase a warship (he can) and if human societies tend to band together for protection and develop dedicated forces for this purpose (they do), there is absolutely no reason for police to not exist in game. Plus it always was there in the series.
BTW: Removing features making Frontier distinct from all the Elite clones also removes reasons to pick it over those clones and what you propose is total disembowelment of the core gameplay and gameworld just to provide you with an MMO.
