As much as I'd advocate an improved PVE system, and generally more challenging gameplay activities, I would have to disagree with the penalty in a loss of badges. In theory, imposing a harsher penalty for losing to the NPCs would exalt an achivement of prevailing against this. However, it seems to be more gruesome than fun if all of the badges are at stake. Although you mentioned that players can easily excel for through the gym sagain, as they typically have potent pokemon in their possession if they acquired the 16 badges originally, many players may still feel indignation in having to obtain 16 badges again if they can no longer access areas that were previously readily accessible for them.
Furthermore, if more uses are implemented for badges in the future, it'll render the badge loss un-plausible. One example is the obedience factor; Pokemon in the handheld games could behave unruly and disobey the trainer's commands, and obtaining more badges could affect their behavior, and more badges were required for higher level Pokemon to be obedient. I can't confirm if this is idealistic to the development staff for the future, let alone feasible anytime soon, but it's an example of how badges can have more value than simply sentimental value/dignified value, and how losing all 16 badges could cross the line between challenging and overkill.
Although I would agree for any venue of a "Pokemon league" to be a staff-hosted tournament, I still have some differing view points to your suggestion. Foremost, a "champion NPC" which you'd battle after emerging victorious in a pvp tournament seems redundant, and it does not play its role befittingly in an MMO media. Having triumped in a tournament consisting of skilled human trainers, an NPC foe simply does not pose a challenge in the same realm as human players. Although the Elite Four played a suitable role in the handheld games, it's because the Pokemon league wholly entailed battling NPC trainers to progress through the next point in the storyline. I can't envision any practical use for an Elite Four in an MMO other than serving as NPC obstacles in a quest to unlock access to new content. Even so, if Elite Four NPCs were battleable by all players (not in relation to your comment, just stating my general viewpoint on their concept in PWO) would diminish the essence of defeating them; to be declared as a Pokemon champion, which wouldn't be meaningful if thousands of other players have accomplished the same feat. Furthermore, you'll get the best degree of challenge from pvp battles, regardless of how advanced AI is for the NPCs. Player battlers simply have more intellectual capabilities and thus are much more strategic and proficient at battling, so the challenge of an NPC trainer would pale in comparison to the finesse skills of a skilled human trainer, and it would essentially be simply a rich source of exp as a post-tournament objective.
My outlook on a "Pokemon League" as a whole is to be a staff-hosted pvp tournament, which occurrs periodically - possibly annually (similar to the Legends Cup), as hosting it on a monthly basis would require more resources to organize it, and it would depreciate the signifiance of excelling at it. A 16 badge qualification, as well as an initial non-refundable entry fee, are requirements that I would agree that you mentioned in your suggestion. As well as bragging rights, and something to denote their achievement on their player card, a coveted prize exclusive to the tournament (like a legendary or something valuable of the same magnitude) may be a recurring prize.
Pokemon league tournament suggestions aside, I do hope to see more PVE obstacles implemented in the game, other than simply gym obstacles + a surfboard requirement. The main synopsis on PWO's storyline is straightforward: Obtaining a badge from one town, advancing to the next to obtain that town's badge, and training your Pokemon in accordance to the gym NPC's levels, until you obtain 8 badges from one region, then you have to save up 200k for a surfboard to travel to the next region and obtain their 8 badges. Additionally, there are a couple of post-game quests to access more potent training areas (namely the Dragons Den and Cerulean Cave). Once a more capable PVE system is in place, which involves instilling an improved NPC system from my knowledge, then hopefully there are more mini-quests and various NPC interaction capabilities (for less primitive NPC obstacles throughout the course of the main storyline) that captivate a player's interest, instead of mindlessly grinding through all 16 gyms + the said post-gym quests. Currently, players are immersed with the pvp scene to so much of an extent that the concept of an improved PVE system does not cross their minds. Their goals are set to basically hunting their preferred Pokemon, developing a dominant full-fledged PVP team, and awaiting an improved battle system; and in reality, an improved PVE system can bring just as much enjoyability to their gameplay experience.
Anyways, not all of my post was not thoroughly formed, and I haven't mentioned everything that I want to (may edit it later to include further details to voice my perspective), but regardless I'm just putting in my 2 cents.
