I agree how you do over a season is relevant. But in general, a better team should beat a worse team the majority of the time. I think the ranking system works too slowly at the moment, it might provide more accurate results in 3 or 4 seasons time, but at the moment it is not accurate except for maybe the top teams.
The ranking system I suggested is a quick moving ranking system with changes constantly taking place, which might take a little while to settle down, but at least if it is fast moving people might be more enticed to actually compete more with higher teams and see where they are ranked. In the current ranking system a team ranked 600th in Australia might be considerably better than someone ranked 400th in Australia. This would probably take a whole season or 2 to reverse itself and become accurate, where as in my system if the 600th team beats the 400th team then they switch places. Safeguards could come into this, like for example both teams must play at the same effort level.