Yeah, the 16 Badge rule sounds like an excellent idea.
If at all possible, would it be possible for you to put in an NPC at the League - similarly to the guy with the Abra in the first run you do, and if you talk to him with 16 badges, it activates the "Pre Red" E4, so you could keep grinding without paying attention to not taking on Blue, as I feel like that would be quite the hassle for a lot of people to pay attention to.
That being said, I think Johto was a little too easy. Especially the first four gyms, as I managed to beat them while boxing my starter and using Elekid and Magby, whom are both baby Pokemon.
Also, I have a few suggestions regarding moves that should be replaced.
Wrap, Leech Life, Poison Sting and Mud-Slap, in particular. Has anyone ever used those moves, rather than just wishing they'd get rid of them?
Also, making the TM's from the first 3 gyms something a little more excited and HG/SS-esque might be a good idea. Falkner gives say, Wing Attack, and Bugsy gives Bug Buzz, and Whitney gives Stomp?