Itach proved to be Hokage material through strength but not through his character.
He had the same basic ideals as Danzo, sacrificing others to protect the Leaf. It's cool and all but all the past Kages, and ninjas who are kage material do not share that ideal. They would sacrifice themselves before a loved one, teammate, friend or fellow ninja.
Think of all the past Hokages and kage material ninjas who have done that: 2nd, 3rd, 4th, tsunade, Kakashi and naruto. There are others but concept of self sacrifice to protect the leaf is far more important ideal for a kage to have over sacrificing others to protect the Leaf.
Itachi did not make a great decision killing his whole clan IMO. Imagine what Naruto would have done in Itachis situation. Naruto would have found a way for peace between the village and his clan whereas the "genius" Itachi didn't.
Keep in mind that the acting Hokage at the time was Sarutobi Hiruzen, and he was against the elders and Danzou's view that they needed to wipe out the Uchiha. Itachi had seen war, knew it was hell, and knew allowing the Uchiha to revolt would leave the entire village vulnerable to other countries invading. He was only maybe 16? He was manipulated to an extent, and to the other extent faced an impossible choice. Usually, it's not the soldiers who are condemned for such acts; rather, it's the leaders. I understand what you're getting at though.
Power wise, I have no question that at the time of Tsunade's coma he would've been a superior choice to either Danzou or Kakashi.
However, Itachi does have some character issues. First, to be as powerful as he was, he killed his best friend Shisui. Second, if he was to continue as Hokage he'd need to see (i.e. EMS); thus, he'd need to take Sasuke's eyes after awakening Sasuke's MS. If he was healthy, he could've done it easily. Instead, he prolonged the battle to remove Orochimaru, implant Ameratsu, and awaken Sasuke's MS.
I think people might wonder how he got such nice eyes. However, only the Uchiha would know, among those who knew of the tablet. But it may become public knowledge as he's more visible as a Hokage, than ANBU or Akatsuki. That's a concern. I do believe he'd die for Konoha though, without a second thought. Consider the life he accepted, which was his own hell.
A visually impaired, near death, Itachi kept Madara from touching Konoha both do to agreement, and I doubt Madara had any desire to fight him knowing he was dying at that such a fight would be costly (partially that Madara needed him alive to awaken Sasuke's MS and for his eyes -> Sasuke's EMS). Sasuke is obviously much easier to manipulate.
