Well, first I would just clear out your league settings from your initial post. It just makes it messy and distracts away from the question that you're asking.
As to what you're actually asking, though, there are different ways to handle keepers. You're a little bit constrained by the way that ESPN does it so you can't do something like keeper costs you round drafted + whatever escalator.
Well, actually, you could, if you wanted to get fancy about it.
Here's my proposals from simplest to most complicated:
* Everyone keeps 7 players. Whee. The draft is then pretty uninteresting as you're starting the draft in the 8th round.
* Noone can keep a 1st rounder from last year. Ok. This is pretty simple. But it will get messy, anyway, because what constitutes a, "1st rounder"? In year 2 of the league, it's pretty easy. A-Rod, Pujols, etc., all will go back into the pool. Ok. Well, in year 2 of the draft they're going to be the same players taken again, just by different teams, since they're going to be better than the 8th rounders they're competing against (see above). So you have people keeping players from rounds 2-6 and passing around to each other the 1st rounders, who will have declining skills.
* You say, ok, that didn't really work. Let's do this: You can keep 2 players from rounds 2-5, 2 players from rounds 6-10, 2 players from rounds 11-15, and 3 players from after then. This might work. You would have to keep track of where people are drafted and: (a) either do some sort of round addition each year they're kept or (b) face the possibility that someone is going to keep Ryan Braun as a 24th rounder for the next 7 years. But it's workable at least.
* Ok. Now for the doozie. This is something I worked up for someone else about two years ago.
Here's a system I came up with someone else who was thinking of doing non-auction draft keepers for their league. Basically, you create a system of, "keeper points" that each team gets to use each season. They get to choose if they use it on a few high-round draft choices or on a bunch of low-rounders. And they get rewarded more for choosing someone in a late round rather than just saying, "4 keepers." The total, "keeper budget" you can adjust up or down depending on how big of rosters you want people to be able to keep, but I'd suggest 16 points or just slightly higher. If you get to keep all of your big studs, there's no real fun in it for anyone who had a crappy team one year to have the same crappy team in the next.
So here's the system:
1) Have each keeper be worth: 10 - Round they're drafted in. This would make a first round keeper count as 9 points, a 2nd rounder count as 8, etc. There would be a minimum of 1 keeper point for anyone drafted 10th round or after and 2 keeper points for anybody picked up off of the waiver wire to create more of a reward for drafting well versus watching the waiver wire (although picking up Huston Street last year and keeping him for 2 points would still be pretty cheap).
2) Have point escalations each year that you keep somebody of 1, 2, 4, 6, and 6 points per year, meaning the first year you keep someone they're worth their keeper point value. The next year they increase 1 point, the next year 2 more, 4 more, and then 6 every year thereafter.
So a second-round draft pick would be: 8 keeper points the first year he's kept; 9 keeper points the second year; 11 the third; and 15 the fourth.
It also means that a 10th+ round draft pick is equal to a third rounder in 3 years: draft year (0), year 1 (1), year 2 (3), year 3 (7)
3) Have a total keeper budget of 16 points. This would allow you enough points to keep your 1st rounder for 4 years (9, 10, 12, 16) plus their first year in the league/drafting year so 5 years. A 10-rounder you could keep for 5 plus their drafting year: 1, 2, 4, 8, 14. But you'll have them at much cheaper for the first four of those years, so there's incentive to draft Pujols as a rookie, but if he does turn into an absolute stud, other people will get a shot at him after a while.
4) Keeper points / # of years kept obviously transfer along with the player when traded.
The ensuing drafts would be done normally, with the last-place team drafting first or whatever system you set up (some leagues set it up that the #6 team drafts first to create incentive for the bottom teams to continue to compete). You don't need to worry about replacing draft picks because all the price is paid via the keeper price: if someone wants to keep a 1st rounder vs. numerous late-rounders, that's their decision and no need to take away their 1st round draft choice from them, as well. Teams that kept more players will be finished with their draft a round or two earlier: you just skip them once you get to their draft spot until everyone has their roster filled.
The benefits of this system is that each round that a player is drafted in has value: finding someone in the 4th round is better than pulling them out in the 1st. It also allows for greater owner control: they can decide if they want their one super-stud or 3 or 4 bluechips that they found late. It also keeps up interest through the entire draft.
The exact numbers can be played with, obviously, although if I changed, I would keep increasing the keeper cost each year so that you don't have someone drafting Pujols as a rookie and then getting to keep them his entire career.
0-3 to 4-3. Worst choke in the history of baseball. Enough said.