I don't see the need to develop "rivalries" in a one-season league - if this were to go the way of the "keeper" that idea would have a little more bearing. Otherwise, as it's been noted, divisions are more at containing travel costs, and rivalries are more about selling game tickets, properties and beer, none of which come into play in Fantasy.
And trying to shape smaller groups to that end, ie, building rivalries, is just extra involvement and not necessary - just more work for someone.
And I don't like the playoff bye idea. It's like a penalty. I'm in this thing to be involved, not sit out with, as they say in Saskatchewan, "My thumb in my arse and my brain in neutral."
And if there's an official LWL league, there should be an official LWL Smack-Talk/Self-Deprecation thread - or whatever you want to call it. That would develop rivalries, and just be a little more fun, and encourage the participants to get to know the other players a little more, without little sideline streams that develop in the injury/trade threads and perhaps are annoying to the Joe Friday types who are after "Just the facts, ma'am."
Just IMHO, anyway.
BTW, is there money involved in this, or is it just bragging rights? I'm more in favor of the latter, certainly given the embryonic state. Let's get it up and running first, so that all the bugs and surprises are dealt with. Money complicates things and changes how people think.