I think it was the blocking of the street (by thousands of drunk people) more than the closing of it which the police objected to. When the last street festival was on, Ladymead House was still a residential home for the elderly, and an ambulance had to be called to it. I think it took ages to reach the stricken resident, if it got there at all. There is a huge difference between the street festival and a lantern procession.
The police also commented that the security staff seemed to be as inebriated as the revellers (I couldn't possibly comment about that!).
I think that if people do want a street party and enough people are willing to organise it, a case could be put for a one-day closure on the grounds that Ladymead House is now private flats, and trained security could be paid to be there as they would do at any other festival, but I know of quite a few residents (and regulars) who would object to it if they knew it was coming, not least the residents of The Paragon who have complained about noise in the past. I liked them when I had bolt-holes to escape to (Rod's shop, my workshop in Walcot Rec, etc.)
This consultation covers more than a one-day event by the sound of it. I don't know if The Bell is going to get involved in the 'Future of Walcot Street' discussion, but I think it should.