Sounds like a pretty solid plan. The only downside would be like you said, people who use this as a way to get the DVDs then don't take part in the main event. Since we're a small enough community, it should be fairly easy to keep track of who was sent DVDs and then compare that with who takes part in the tournaments.
I'd say most of us here would be fully engaged in the concept, so we shouldn't let fear of leechers take away from the project. If it becomes too big of a concern, perhaps a deposit system could be drawn up so people would have some motivation to contribute and not leech.
For point #2, I like how you have things divided up in terms of time period, I'd go with how you have it.