I dunno about "too big", I've engaged in emergent PvP before, just not in the absolute core hotspots. There are a few mini-player-hubs that have reliable enough traffic for you to see people (and actually engage in combat over real reasons, like supporting opposing sides in a conflict) without being busy enough to be reliable sealclubbing-grounds.
I won't argue about the powergap though.
Sure. Just as you can get request for duels at SD. What I think about is more like the New Bushido concept you could read about in Hyperion : when two factions have strong tech enough for mutual annihilation they do wars for sport with strict rules of engagement. That's something player groups kind of already do as well but I just think it should be hardcoded directly into the game, for mercenaries to socialize and pick sides without making it a lobsided stomp.