A few ideas I thought to try.
1. Cap the teams to 5 people per side. Having to many just causes a crash fest way to many graphics overloading peoples video cards.
2. Yes, for levels keep them within 6. Its a little wide but unless every member of a team is 6 below the other it should still be fair.
3. Give 2 standard faction guards to linger around the shrines and with this I had some additions.
A. Offer an upgrade option every 100k (each) will boost one of their powers and perhaps transform them into a faction boss
B. Offer the chance to buy a spy, if you offer to pay one of the guards 100k over what they are getting they will turn on their own sometime during the fight. The catch is you do not know how much was invested in them. If you offer 300k and they paid 400k in upgrades you are out of the money and you wont know until the fight is over. Same case if you offer 300k and they didn't upgrade at all you spent 200k extra for a standard usually fairly weak ally.
4. Offer a betting system, this wont be coded in but through the DM, as a team you offer up something as a bet that you win. The Gods dont play fair so if you win you get something half its value, tome of +4 you will get a +2 if you win. Or allow the players to bet each puts up item(s) of same value and the winner takes all.
5. Faction escort, the winner gets one of their faction guards to assist them on any travel for a short time, giants, planes, even relic runs. The escort is not invulnerable. He will be stronger then a standard guard but equipt with a lot of heals and some raises while very little offensive power. Consider your level he is escorting, add a few levels a lot of hitpoints and a quarter of your punching power.
I think there is a lot of potential for fun with this but, this is just meant to be the change of pace not constant which is the reason we can't offer big prizes otherwise everyone would just keep trying the arena. The other issue is honesty 2 teams put up a bet and there is a spy on one to make sure they loose is not acceptable, npc can be controlled by us and this is one issue that although I trust everyone

if I tried this and discovered someone was deliberatly ruining it I would inflict severe penalty on their characters.
Investing money in something that doesnt give xp may turn a lot of you off, I know everyone wants to level but a lot of fun and some bragging rites isnt so bad and you have the option of not spending a single gold piece. It also gives everyone the chance if they are putting some rare items up to bet to get some reinforcements. I wont give an exact scale of the upgrade levels but I will say 1 million gold is maximum accepted (if you invest that much your ally cant be bought off) but it wont be a killer of 10 lvl 40 people but it will be a worthy advisary.
For the lower levels that come for group fighting, the guards will be replaced by peasants (yes they are mostly useless but short term meatshields)
Another issue is lack of contestants from same (or ally) factions. Unlike last time I will keep things between rivals, ie they would be red on login if there isnt enough then no event.