I agree with Gatecrasher, we are not talking about overall rating not including timeouts, but just the average for tourny entry. I think this is a fair system. I would also average over all games played on RHP. Obviously tou still have the problem of new comers to the site who have a rating on the rise, but you would reduce the number of previously higher ranked players entering tournaments at level thresholds way above their ability.
The idea of a 1200 - 1299 tournament is to give players of this average ability a real chance of winning something, not to allow a higher ranked player who has been timed out a lot an easy victory at the cost of the hopes all the legitamate entrants.
I was in the 1500 - 1599 tournamnet and I already know who would wim before a move was made.