The basis for your argument is that people will cheat. While this obviously has happened, I am not sure it is epedemic.

Assuming that is a valid concer, however, it will be harder to tank under my proposal than the current set up. It is the current ease of getting a lottery pick that [provides incentive to tank. Under my proposal, only the truly awful teams would qualify for the lottery. The middle of the pack teams, who can qualify for the lottery now with subtle, unprovable tanking as they only have to be the 8th worst team in the league to get the pick, would not be able to get to the lottery without obviously tanking -- and should be caught if they do it. Thus, reducing the number of teams that can make it into the lottery should reduce the incentive to tank.

This is good for everyone: truly bad teams get better RK pick; middle of the pack teams will have less incentive/ability to tank without getting caught; good teams will face more teams that are trying to win rather than trying to get into the lottery. I think this is much more likely than the doomsday scenario you envision.