Keep the percentage requirements/limitations for Lords, Heros, Core, Special, and Rare.
Use Grand Army rules: maximum of 6 special choices, 4 rare choices.
Each side should strive for a balance between pure fluff and competitive.
Does it make sense to allow duplicates of certain magic items or chaos mutations? For example Scaly Skin and Dispel Scroll, rather than Third Eye of Tzeentch and Runefang.
I would suggest we don't mess around with steadfast at the moment.
For Magic, use HHG's idea with the added caveat that each side casts 3 spells at once, then the other side chooses to dispel each of those. Otherwise the magic phase would be pretty drawn out.
I was thinking about whether we should allow duplicates of spells for different wizards, but it is more interesting to force each army to decide how to allocate their spells.
Finally, I say we should allow special characters. This is a big battle, so some of the major players in the Old World might take an interest in the fight.
The next step would be to make a master battle thread that lays out the rules and sub-threads for each of Chaos and Empire so people to pick their side and start developing an army list and command structure.
The main thread should, like previous games, only be for the generals and the administrator, so that the game is easy to follow for both participants and readers.
edit: Also, 1 general, 1 BSB. With steadfast and big units on the board Leadership is going to be important.