We have another issue I thought of as well, and I'm not sure how to police this:

What if I'm playing Prawney, but I haven't signed up yet (I'm taking a wait and see approach). He gets eliminated before late registration ends...so I decide to sign in and automatically advance to the next round. Doesn't exactly seem fair.

Is there a way that the players in each matchup can consent to a tournament for their heads up battle? An opt-in type of mechanism? This might be the way to solve all of the problems.