I think a multiplayer tournament is a great idea conceptually. Pulling it off logistically might be a bit of an issue. But I might even dust off my multiplaying skills to try it. The other issue is that the third (and every subsequent) player tends to have a big effect on things, so if there's a level 36 and a 31 and a 4, what the 4 does is going to very often determine which of the other two wins, even if it's really bad. Now this is a much, much smaller problem in dominion than in a lot of other games, but it's still a problem. But I suppose that's somewhat just the nature of gaming.
I would like to see some kind of structure for a tournament where, say, the lower seeds have to win a lower-seed tournament, or maybe win a couple matches against other low players, to get moved up into the next section, and soforth. So it would look something like this:
First section: Everyone level 0-10 plays, top X advance into second section.
2nd section: Level 11-20 plus advancers from below play, top X advance into 3rd section.
3rd section: Level 21-30 plus advancers from below play, top X advance into 4th section.
4th section: Level 31-40 plus advancers from below play, top X advance into final section.
Final section: Level 41+ and the top players from below battle it out, possibly with longer matches or even double round robin.
Cons: This is a much longer tournament, the top players play much less in it, seeding counts for a lot more, did I mention it's much, much longer?
Pros: Lower players play a lot more, the matches are much more even in general, seeding counts for a lot more, you can have some really intense finals.
You might want to supplement this with some other stuff. And I think once a year for the big tourneys like this. Smaller ones like MMM has run are fine on a more frequent basis.