Sounds alot like the league I'm involved in at work. A mixed bag of casual/skilled players. The one thing everyone can agree on is having fun and talking smack, so we play H2H points. Plus the extra element of luck that goes along with that helps 'level the playing field' so the speak.
Draft day is the best day of the season. Since it's a work league, we grab a big conference room after hours, order in pizza and bring along plenty of beer. The room's got an overhead projector we can control off a laptop so we both input picks in a spreadsheet and display it for all to see all at once!
Live draft in person is definitely the way to go.
$20 up front seems to keep everyone interested all year, plus we add in $2/loss. The added shame keeps even the last place team interested in winning every week.