I like this idea. It could also work for raid size. But rather than a hard cut off, make it be an increase in probability. There could be an increase in probability in the number of items and the quality of loot. The faster you defeat the boss, the better chance for uber loot. The smaller the raid size, the better chance for uber loot.I like the idea of timed events/encounters. Defeat boss X and get <loot> , defeat him in under so many minutes and get <loot>+<loot> (or <loot++), and so on... rewarding more efficient/effective teams with either more or better loot. Want better loot? Learn to play better.
This way you always have a chance for uber loot, but the better raids will have better chances. A poor raid will tend to have fewer items drop and they will be lower quality.