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Firstly, I personally would not feel entirely happy loaning my army to who-knows-who for however long. I would if I trusted everyone there, but it would just be too easy for one random model to... go missing.

Secondly, I've never played with Tau, Necrons, or Dark Eldar. I'm sure that even finding out what everything does would take a fairly silly amount of time, let alone using it tactically.

And finally, what's to stop someone deliberately entering a really, really bad army, on the basis it probably won't hurt him, and even if it does it'll hurt others in the tournament by exactly the same margin?

EDIT: This came across pretty negatively. Amongst friends, I like the idea, especially if it's tweaked to ensure that the various drawbacks are minimised - a display board with a slot for every model solves no. 1, and always using your own list for the final game solves no. 3. No. 2 probably isn't a concern for most tournament players. But you wanted to know the drawbacks, so...