I mean yes it could be great. The whole idea of having separate factions/clans/guilds or whatever would add a competitive side to the game.
BUT, a big but is that what would happen is that the higher lvl people would most likely band together to form a power house.
I used to play something called gangwars back in the day and the same thing happend there, the group that was the most powerful was the group that had the best of the best in it and so everyone else just gave up in the end trying to fight back. I could see it happening here as well in this case.
I know this isn't the same game mode, but the core problem is still there. hey, i might be wrong its just me looking at it this way but its still there.