Would not this be considered "cheating" to intentionally lower ones rating in order to get into a tournament with lower rated players? I would think this should be reported to the site administrators. Your idea though is a good one though I think there is a minor flaw: if a person playes higher rated players consistantly and loses it is concievable that their rating could drop as much as two hundred point. So what would be the consequences?
Rating Floors

Yes, that's why I suggested this. Doing this is cheating. But if this idea is implemented, you would not be able to go 200 points under your highest rating. This is simmilar to the USCF's floor. For higher rated players, they cannot go under a certain rating regardless of how many games they loose. Therefore there shouldn't be any consequence if you hit your floor rating.

I have played in many chess tournaments on Live Chess. On occasion, there is an extremely low rated player that beats everyone in the tournament. I have experienced this a few times before. One example was a 500-ish rated player that played like an 1800. I looked at his homepage to realize his highest in chess was an 1800 rating. There is no real way for this to happen unless you purposely loose games to lower your rating. To prevent this, like in the USCF, there should be a rating floor, meaning you cannot have a rating under said floor rating. Once you reach a certain rating, you should not be able to go 200 points under that rating. This will help Live Chess become more fair to all players.