Not sure how it works in consoles but in PCs, large team-based tournaments aren’t any fun unless you know the people you’re playing with. Keep the teams at 2v2, it makes it much easier for random people to learn to play with each other.
You might try having a team-based tournament AND a free-for-all tournament. That way you let the small-team loving people have it their way and the people who didn’t bring buddies have it their way. Both could occur at the same time if you limit registration to one or the other and it really doesn’t tie up any additional resources since the people were going to play in a Halo 3 tournament anyway.