I like the idea of AU/AR teams, as long as you provide the definition. It would do good, IMO, to word it in a more conversational way, such as "We will consider AU..." instead of "AU means..."
I firmly believe there should be one basis for the division of teams. I.e. if you make it AU/AR, then there shouldn't be a third team Fanon or Wartime because such classification defies logic. AU/AR/Canon would be fine though.
I don't like the idea of mixed art/fic games. I realise that two games a year is much more work but it's much more joy for fandom too, IMO. Besides, I second RaeWhit's wariness: what if I like the art but hate the story? Or vice versa.