There is a growing body of literature on networked control systems treating the relationship between network channel capacity and stability of the system’s operation. In a very rough but intuitive sense, the main results in this area provide a quantitative understanding of the way in which restrictions on the rate of information exchange among system components in a real-time system will degrade the system’s performance. Recent extensions of these results provide an understanding of how system performance will depend on the magnitude of noise and the degree of asynchronism in the operation of system components. A number of researchers have recently begun to look at the problem constraints on feedback channel capacity in decentralized feedback control structures. In the present paper, we examine the way in which decentralization magnifies the degradation of information due to noise and asynchronism among decentralized sensors and leads to instabilities even in cases where feedback channels have ample capacity for stable operation of a system with centralized components. Further, we discuss an approach to solving the observed problem by a novel source-coding strategy which is similar to but different from the well known Gray code.