I didn't have a chance to play any Magic The Gathering Grand Melee format but I read the rules and I found it very cool. Indeed, I have played similar format with my friends and it worked alright.
In my opinion, the biggest challenge is the arena. After having some defeated mages the arena becomes too big for the number of playing mages. This might create a problem where mages start to run away from each other.
Overall, it could work, specially with 3-6 players. However, it is hard to say if it is fun without giving it a try.