Well this thread doesn't have long for this world. Kaz unfortunately you mentioned WoW in your OP. After reading this thread easily 3/4 of the posts are directly related to this. Shiny objects and all...you need to be careful with your wording.
Anyway, I'd advocate a small "arena" fighting system if it were easily incorporated with squad play. For example, you could potential queue up as an individual, or a group. To be honest, I doubt I would use the system much, but I really fail to see how it would detract from the community. If you think AH doesn't already have a bunch of smack-talking squeakers, tune 200 for about 10 minutes.