I think that your second paragraph is an excellent suggestion. I think that 500 teams or so is probably enough for one region. Lately I have been seeing a lot of concern over the stagnation of the game and the widening of the gap between early signups and new signups. I played Hattrick for one season and was so far down the ladder I couldn't even see the top of the bottom of the barrel (thanks Operation Ivy). I have been thinking about how to combat this, with no good solutions. Salary caps and revenue sharing are two possible ideas, as well as greatly increased player ability in the lower level drafts. The former two will undoubtedly enrage most established owners and the latter doesn't seem likely.
Once I scored a basket that still makes me laugh.