Like others have said, this is a great initiative, but has some problems.
1) I don't see games as much of an issue. On top of that, blacklisting works well enough and accomplishes the same thing.
2) Dividing the community:
being rated M will be viewed as a punishment, since it excludes you from all tournaments, ladders, public forums, and talking to E players. We would basically be splitting the community into two.
I see it as more of a soft ban. Who's going to make any M games? How many M players would there even be? I'll be honest, if I get rated M, I'd just make a new account.
However, I could see this system working on the forums (if you want to police them at all) and I'd volunteer to be on the council.