Yea there are definitely some tweaks and details that need to be ironed out for #3 to actually work at all. I know that there's a way to make it all work, I would just have to think a lot more about it and come up with ideas to cover every issue.
As for what you said about tanking for the 6-8 seeds. I don't think that would be an issue. Making the playoffs is such a huge boost for teams that tanking out of the playoffs just to have a chance at the top pick probably isn't worth it for teams. Remember, the team has an equal chance of getting the last pick of the lottery as it does of getting the top pick under my system.