Or short of that, those with enough power to challenge him push for reforms, constitutional revisions, and something closer to real elections. Putin's most loyal supporters are probably those within the domestic security and law enforcement apparatus. They likely owe Putin their positions, government paychecks, power, and other privileges. But in any country - even ours - when it really comes down to it, the military is the last line. They can preserve a political regime; they can destroy it, too.
Except Russia actually did get some meaningful concessions in 1962. We had to remove our missiles in Turkey and Italy.
It's not an empty threat, IMO.
Putin may end up offering a deal in which he agrees to withdraw his forces from the whole of Ukraine but that he will keep supporting Luhansk, Donetsk, and Crimea. In other words, all that for nothing. He accepts defeat in Eastern Ukraine, but he doesn't have to admit a defeat. He can claim that it was necessary to make Ukraine realize that they can never retake Western Ukraine's territory, that it's independent territory now.
This would actually be the best exit under the circumstances because it could open up a possible debate and become a source of disagreement among all the nations currently supporting Ukraine. Some will argue that Putin needs to leave all of Ukraine, including the Donbas and Crimea, but maybe there are a few others who might say "Let's quit while Putin's thinking rationally. He's admitting defeat. He's leaving Ukraine."
A tactical nuclear weapon is a real possibility, and I'd say that it would probably be a scenario close to the one you described above. Either an unpopulated area, or a 'military' or 'industrial' target. I think the chances of this actually happening are rare, but I'm trying to get inside Putin's head a little. Based on his prior behavior, he's certainly capable of it.