But when Lee's army was defeated and Richmond lost, the whole thing collapsed. Now obviously here Lee's army isn't the symbol, but the morale effect of losing the capital is going to be considerable.Probable would be more likely considering that even after Lincoln is re-elected and the Southern economy was a basket case Dixie still refused to fold.
I do agree though that the South could quite easily agree to continue fighting - I didn't mean to imply it was unlikely. It's just that their armies are not going to be able to perform at all as well as they did historically. For a start, Tregedar apparently manufactured more than half of all Confederate field artillery, and I would assume the same sort of proportion applied to heavier coastal defence guns; given the importance of artillery in shaping the battlefield and defending against assault, the CSA's going to be in a much worse shape.
I'd nuance the bit about the Peninsular campaign being handled in a more aggressive manner, though - there was nothing wrong with the Peninsular campaign that another 20,000 soldiers wouldn't have solved, while there was a lot that was the problem that more aggression would not solve.