I have said a million times that promotion/relegation system is the way to go, but I also understand that many communities/coaches don't understand the benefits of a system like that for the vast majority of programs. I feel like this is dipping their toe in the water of it to prove it is viable.
One of my contentions is that pro/rel allows teams to be competitive against likewise teams (based on previous years). The "B" division essentially is that (except for that year). Now, would I call this specific group "state" champions, probably not, but that is the least of my concerns. If they are doing seeding, of course there is greater # of mismatches. That is why you are doing seeding, so that the #2 doesn't play the #1 seed in the first round. I don't think the goal is to get 64 teams per class into the playoffs, I think the goal is to show that we can make a competitive system based on MaxPreps rankings.
Now, I do like the idea of taking the rural class as a whole and making it just the North and South and removing regions as a whole. That is something @DisabledAccount aka ColumbiaFan often promoted.