I seen a 3p contest with 4 players from the same team. And in an competitive league to.
As I wrote - the all-star "weekend" as no real-affect, and even if I remember wrong (and I said I might at this point), having more teams taking part of this game is something that may add to the involvement of those users.
I don't see any back-side to that.
BTW - for exmple, in some of the sports a single nation could not send more than a single participant for the olympic competition.
So, it is surely not something never heard of...