I've seen this done at some of the USA-NKF regional tournaments. Effective system, and it cuts down the amount of time needed to complete the division. This can really help, especially if you have lots of people doing long kata, such as Kusanku / Kanku Dai, Gojushiho Sho / Dai, Suparenpei, etc.
At the nationals, they also use the bracket system for the mandatory division (Shitei), but do them one competitor at a time. You cannot do the same kata more than once.
Using the USA-NKF nationals as a model, I see this as a very good format, since it forces each person to be able to perform a wider array of kata, instead of just specializing in one or two. For example, a group of 16 would require that the winner have performed 4 different kata.
Also, it gives the referees a concrete comparison between two particular individuals, instead of each referee trying to remember how each of those 10+ competitors did, and then formulate a numerical score. Let's face it... If you're trying to assign a specific score to someone, it can get rather confusing if your division gets rather large.
Furthermore, it takes away some of the referee bias, since it forces them to evaluate competitors head to head, and not, say, one particular competitor who they may really like, versus the rest.
Equally as important, I believe that such a system also tests the competitors' physical and mental endurance, both of which should be at least respectable at this level.
While everyone is going to have a favorite kata or two, to lock one's self into just those one or two, and to not even explore the variety out there seems rather limiting to me.