After giving this some thought, I've realized that plenty of the suggestions people are proposing stem from varying priorities. I think we can sum up the priorities people have in mind.
- Equal distribution of power/ balanced arrangement of powerhouse teams
- Regional representation/ regional pride
- Divisional pride/tradition/rivalries
- See/play teams from other parts of the world/country
- Not being stuck permanently in a division
- Creating an event out of the selection process
- Teams being able to select their own divisions
- Teams being able to select other teams for their own division
- No hurt feelings for drafting, nobody being able to know who was picked last
- Playing for permanence (i.e. winning to become part of a certain division)
- Division-wide prize for winning division
The "best" idea will probably incorporate as many of those as possible, so as to placate the most people. Many of the systems that people are proposing have aspects that are not mutually exclusive, so taking parts from one system and adding them to another might produce a good idea that (almost) everyone can get behind.