I think it's a good idea. I can measure distances by counting hexes (and not be too far off), and I like the slight 'uncertainty' about a figures actual position that it adds. Line of sight should be pretty easy to figure out as well.
It looks like about 3 figures can fit in any given hex, which sounds about right. I guess you'd have to let figures in neighboring hexes fight in close combat as well as figures in the same hex. Perhaps only allow friendly figures to share hexes?