Ever since the idea of first war was introduced I wished for team Rainbow. However, I'm very against it now, for couple of reasons.
First reason is the selfish one - its annoying to build decks against whatever, while you're relatively predictable yourself. I built few decks with UW rules, and that 3 card limit rule is almost not limiting at all. They can indeed build whatever. Stabbing in the dark with your deck is no fun at all.
Second reason is thematic reason - this is the war between elements. People boast their elements trying to "prove" their supremacy. And its funny and brings some atmosphere to the event. Rainbow is not an element, it has no theme, it has no weakness apart from artificial one we try to introduce with rules. I see no difference between making Rainbow team and making several more teams by joining couple of elements together. Those teams lack "identity". For the same reason, I dont really like Underworld, but at least it has some story behind it. I would however hate to see UW winning the event. It would be a win and loss of all elements at the same time, in an event that is supposed to be a war between elements. Kinda meh.
I do agree that the way it should work is that 12 elements battle it out, trying to find out who is the best. Having these extra teams is kind of lame, especially if they win. If Team Rainbow or Team Underworld wins, there won't be a winning element. With Team Underworld it's not that bad because the fact that there is no winning element, is their revenge. But Team Rainbow winning would be pretty lame.
Also there has to be a limit on how many extra teams we introduce. We cannot just keep adding them like "Duo-Deck Team", "Rush Deck Team", "Team-That-Wears-No-Pants" etc.
On the other hand, many players have requested this and it would definitely bring something new to the table. Also it would mean overall number of participants wouldn't drop as much after going with 1+7 for all teams.
One option is to do what fenix2011 originally suggested: have 2 teams per element. Each team would be 1+5, bringing the total number of participants to 156. While that might sound like it made War two times more complex, it might actually make things
easier because teams are smaller. Battles happen separate from each other, so in theory, one duel might last just as long as a 1000 duels. Of course there should be some kind of limit to this, but I see 156 still as manageable.