That post got me quite confused on a quick look. For first, I'd like to say forbidding "home-made" levels is quite a questionable rule. That would mean players are allowed only to play in Epic's levels, as everything else, even the popular levels
are home-made.
Although I know what you were trying to mean with this, I still think such a rule would be useless, because players should both agree on the suggested level unless the choice is made by another in rounds of 3. So it would be quite unlikely for any opponent to agree playing in a "crap-level."

Now for second, the really confusing part is the "knock-out stage." I got the feeling this is something like an elimination-tree, with a dash of ladder-stage. That meaning you can duel anyone you like as the only match for your level on the same group(level in this case), yet losing any match knocks you out of the whole tournament.
Also I suppose *they* is just a typo, when talking about the tournament-winner in level 3. As well, if there's silver and bronze, the remaining players of level 3/loser level 4 should duel each other once again, right?

P.S. Give out estimated tournament starting/ending-dates, and I'll respond asap whether I'm in or not.