Hah, you quoted me from about 100 pages back or so! Anyhow, I like your idea about the city, but having trainers walk around would make it hard to catch up to each other to battle. Rather, the union room idea with stationary trainers to battle would be perfectly satisfactory. Lets just cross our fingers that they implemented some form of battle restrictions. I don't want to fight 6 Kyogres on one team!
Not to mention the processing power. I know only a little about computers but I'm pretty sure the DS can't handle it (the moving city, not a union room). As for restrictions, with the random battle things thats coming up, they might make it like the battle tower: item clause, legend restrictions, and that stuff.