the division thing was kind of anti climax as it limited the people you could play, and my division ended up being really shitty compared to the others, which was good for me but also is kind of unfair.
I really like the concept of seeding, but it would be impossible to seed 256 people. Straight up free-for-all also has its disadvantages as two heavyweights could face off round one while two inactive randoms will not battle and one will advance on a coin toss.
The "fairest" thing to do is maybe make some sort of "trainer tier" for the first round or two, in order to make it as competitive as possible. What i mean is maybe rank everyone that signs up 1-3, 1 being a preverbial "random" (we are bound to get many), 2 being "I have heard the name but he hasnt really proven himself to be amazing", and 3 would be a proven battler. Then in the first round kind of pair 3's against 1's and 2's against 2's.
This would preserve the competitiveness of the tourney, albeit make round one boring. But i would hate to see round one: "husk vs loki" and then right under it "xXxrandomxXx vs lol_who_am_i69"
this provides the effect of seeding while not actually seeding 256 people, cause you are right in saying we will get that many people.
(on a sidenote did the winners last time ever get the prizes? :o)