I think it would probably be used about as much as the current options on TFs/Ouro Arcs with the current structure (i.e. - badges on ouro arcs, nothing on TF). Outside an additional reward, I don't see it being used that often other than a challenge TF.
As far as an additional reward... What I would like to see, and I didn't include this in the OP, would be a challenge setting would give a percentage of bonus merits. (These are just numbers thrown out there) No temporary powers - 5% more merits, Primary/secondary only - 15% more merits, etc. It wouldn't necessarily have to be merits. Throw in any of the other currencies or a temp power or badge or whatever.