I'm not sure I see how taking away regions, only to place more does anything for player density. Making war on Dwilight more feasible I suppose is a good thing. I always thought that Dwilight was never designed to be just another island, I much preferred the days of the frontier realms that had more to worry about from rogue forces then what ever was occurring on the other side of the map. The loss of that setting has only made the design flaws of the map in regards to the core game more evident.
Personally I am against any action that targets regions and realms, no matter how logical the application may seem. I would prefer a in game event that determines what occurs, and allows those players and realms that put in the effort to avoid the worst of the effect. Give the characters some control over what is occurring.
The reason it helps is that it squashes the map down some while providing areas that are good for new realms. Currently Morek and Astrum are spread all the way to the north into regions that they literally could lose all at once and only one character would have to go lordless for any length of time. My idea isn't to solve player density directly, but to make the island geography better than it currently is. Dwilight is way too stretched out, leading to realms on either end that are completely isolated from the other end. Now that was fine when we had the west continent, so that there was always a realm that could compete from the western continent, but that is no longer the case.
As well, this would provide regions to feed the glut of cities that are in the Lurian area, as well as hopefully stopping the starve, population boom, starve cycle that happens so often on the D'Haran isles.
