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Speaking as a casual player, I think this is a great idea. Due to time constraints I have recently been forced to stop raiding. Because I don't have access to higher level content I have no desire to play my druid. My gear is adequate to tank any content that I have access to, so why should I grind rep or instances for that marginal upgrade when my gear is fine?
This idea would give me access to an upgrade path, access to new (to me) content, and most importantly a reason to spend time developing my character.
In regards to missing out on 25 man Karazan, if you are interested in doing 25 man content you aren't the kind of player that would be happy with 25 man Karazan for too long anyway. You would want to get past is asap and get to the higher content. Making Karazan a 5 man would let you get to the higher 25 content faster.
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