I've been thinking about politics in the City, and am strongly leaning towards making it a city-state. That would make having a chaotic wilderness quite easy - the City defends itself and watches the main roads to its trade partners (as well as the farm supplying it with food), but stray from the main roads and things will be in quite a disarray.
Regarding the City's armed forces, I think that a multitude of them will serve both setting and game quite well. Noble Houses will have their own Men-at-Arms; the City Council will employ the (quite corrupt) City Guard to police the city and defend the roads; and the City Council will employ mercenaries (think the Italian Condottoeri of the 15th-16th centuries) when engaging in warfare with other city-states or nations. With order deteriorating and politics being in a state of flux, there are MANY armed factions with the City's walls. And as long as the PCs won't be marching around in field plate with cannons in tow, or start attacking by-passers in the middle of a street, I don't think that a breastplate, a rapier or even a slung musket will draw too much attention.
The City was founded approximately 700 years ago by several (3-5) bands of adventuring Vikings, the leader of each establishing a Major Noble House; later on, other people of power became Minor Houses. Today, the City is managed by a Council composed of representatives of all Noble Houses (the Major ones having more votes than the Minor ones) and the clergymen of the New Faith. There are also some upstart wealthy merchants and industrialists who would like to have a bigger say in politics - some would even prefer to get rid of the Noble Houses altogether and let the merchants and industrialists run things - and their money gives them a clout. So far the conflict between the Noble Houses and the Merchants hadn't exploded into much overt violence, though.