I would agree that the specific religion in question is important to the question, and to any attempts of an answer.
Generally speaking though, i would say that a "free market" society, with lax official social codes is better than any "one way", perscribed by the state for all to follow.
If you meant a "theocracy", then this is exactly what happens. A strict social code is dictated to the people. All have to follow it. For example, take the taliban (whom have just recently cut the head off a headmaster for teaching girls - something which is strictly forbidden).
So essentailly, to me, the question is one of "liberty". Whilst i recognise that free market capitalism has obvious enforced rules of behaviour, as well as numerous unofficial social codes of behaviour, i do believe that it is a system which gives the individual more "freedom" than a theocracy.
I would like to point out that i have no problem with religion when it is a voluntary coming together of people. My support stops when individuals try to force their "way", onto others (such as a theocracy).
Although that is a very general answer to a general question.
Captain Blackadder: You see, Baldrick, in order to prevent war two great super-armies developed. Us, the Russians and the French on one side, Germany and Austro-Hungary on the other. The idea being that each army would act as the other's deterrent. That way, there could never be a war.
Private Baldrick: Except, this is sort of a war, isn't it?
Captain Blackadder: That's right. There was one tiny flaw in the plan.
Lieutenant George: O, what was that?
Captain Blackadder: It was bollocks.