playBunny: While you were writing your latest note, I was also putting together my thoughts (interrupted by a few phones calls). I think the K factor is also a good idea, then a tournament, for instance could be set up to have K factors built in to encourage higher rated players to play and put less of their points at stake against lower rated players. Maybe a combination of both ideas?

Or another idea is that players could agree the number of points they will "put up on offer" (there would need to be a max.) at the beginning of the game and the respective splits they might get out a win draw and lose. An example might help:
A is rated at 2000.
B is rated at 1500.
The (historically) expected result from 100 games might be (for A) 70 wins/10 draws/20 losses.
They agree the game is worth 100 points (actually probably too much but lets move on).
A risks 70 + (1/2 of 10 = 5) 75 points.
B risks 20 + (1/2 of 10 = 5) 25 points.
If A wins - A gets 100 (+25 now 2025) B gets 0 (-25 now 1475).
If a draw - A gets 50 (-25 now 1975) B gets 50 (+25 now 1525).
If A loses - A gets 0 (-75 now 1925) B gets 100 (+75 now 1575).

WhisperzQ