I like this idea, especially the protection against farming renown from newly spawned and unarmed players. Maybe EU will stop attacking all of the poor NA people who were exiled there and are traveling back. (I'm looking at you, Coalition!)
I think heroes with more renown should have an easier time recruiting troops. You know how you get double the troop recruitment rate until you reach 100? Maybe increase that threshold so you can recruit them faster, and (at a much slower rate) increase the number of troops you can have without upkeep. (By much slower, I mean, by the time you get to recruiting 200 troops at double rate, you'll be able to support 110 troops without any upkeep cost.) Also, renown should decay (slowly), because your troops will get bored if they sign up to be a part of your awesome party and you don't do anything (and will require you to pay them, or leave).
You might also consider granting a slightly higher distance bonus for a trader who is renowned in battle. (I mean like 3% or so; nothing extravagant.) This means the more your faction fights (and wins, especially), the stronger its economy will be with the same amount of effort. I don't think this will cause larger factions to spiral out of control, nor should it overshadow the penalties of defeat; i.e., losing out on this bonus doesn't matter nearly as much as losing your troops and gear, and potentially other, more significant assets.
For mercenaries, you could grant some amount of renown for each fifty points or so that they earn fighting. This keeps the numbers relatively low compared to the heroes themselves, favors people who do well in larger (and thus more well-known) battles, and precludes most of the extremely unbalanced fights.
