If you do RP fights, that's going to require a /lot/ more regulation to prevent godmodding and ensure a 'fair' random fight. A lot more mechanics to work out to perfect than would be worth it, really. How many hits someone has, how much each ability hits for, how CCs and stuns work, how heals work, ect.
Also, shady is perfectly fine and totally encouraged :) (Ie, that whole paying off debts thing.) It can be rather interesting and fun. I can think of a bloke or two I know that might wind up having to do that :p
The Warlord thing would probably be more up to any of the Alliance players that want to participate than anything, I imagine, so if any of them want to run with it, heh, well, there you go.
Also, actual in game arenas have their pros and cons.
A few pros:
It allows for team based fighting or more than 1v1. (The biggest pro in my opinion)
Its a bit more dynamic than a duel since there is no area limit
The locations themselves are thematically suiting and wonderful for the event in question.
It creates more opportunities for RP. Maybe you need to hire on a few guards to keep outsiders from interfering, or maybe one of the fighters decides to rig a match or someone is paid to assassinate one of the fighters during a match. Other random things like that.
A few of the cons
Its a lot easier for non-rpers to interfere.
Emotes are a bit trickier to see inside of arenas as they appear as strange gestures to the people free for all flagged.
I can't really think of any of the other cons at the moment, although arguments can be made against each. For the first con point, enough of us on Horde-side are geared that we can stomp any of the griefers that do show up unless they do so en masse, which very few people would actually bother to do and even then it'd be easy enough to just step outside if that did happen. For the second, well, you're not oging to be emoting much in a duel anyway :) And if you need to just use say.
As such, the pros far outweigh the cons, if you ask me.
Unless I'm mistaken, there are three permanent FFA flag areas. Gurubashi, Dire Maul, and Nagrand.
I would recommend either Gurubashi or Dire Maul, myself. They both have better aesthetics and what have you. Gurubashi has bleachers and stands to sit at, Dire Maul you can sit on the ring above and watch and the fighters have a little area to themselves that they can co-mingle in as they wait to fight. Gurubashi is probably a bit easier to get to, although DM isn't too far out of the way.
Up to you which one you use - or, hell (Wow, too much WoW. I typed fel at first), you could alternate between the three arenas. Spice things up a bit. I'm all for dynamic event locations, if fishing and lore nights tell you anything. Too much of the same place gets stale.