If all of the "cheating" account were taken away it sounds like some of the micronations would have a tough time maintaining 1 full division of players. Even banning these accounts would not create a competative environment. The idea of combining micronations might work but if they are not in close proximity it might seem a bit odd.
It might make sense to have some of the micronations become a part of a bigger countries league while maintaining their own cup team. For example Hanguk has only 14 active teams so it might make sense for them to move into China's league. I would have them move into the place of bot teams at the end of a season and their world ranking could help determine which league would be appropriate.