When I hear that something "works in theory," I understand that to mean "if you oversimplify a little, this would work well." "In theory, there's no difference between theory and practice; in practice there is."

But it's only valid if you oversimplify a little. Starting with "first, forget everything you know about human nature" goes too far.

I don't think of "works in theory" as shorthand for "doesn't have internal contradictions" or "sounds reasonable if you forget everything you know about human nature."