Putin and federals does not rules in Moscow, Luzhkov does. And Moscow is still very independent from federals to perform its own foreign political and economical relations. That's why there was no federal support in Moscow 2012 bid, nor now for 2010. As well as there was no Moscow support for Sochi 2014 bid. Its financial and economic situation allow it to be independent. Somehow economy will overpass London this or next year, budget is third largest in the world after Tokyo and New York - $48bln of expenditures planned in 2008. It's more than 2,5 times larger then London consolidated budget.
Anyway, your knowledge about Putin and entourage is significantly distorted by prejudiced media. As of freedoms in Moscow. They are very high, especially in media. Largest tv operators provides all type of news channels in one packet, including foreign, russified foreign channels and russian channels.