Separating divisions will always be an imperfect science at best. There are many different motivations for players division choices but what I think it boils down to for many players is they want to play in a grouping that, on a good day they feel that they would have a chance of winning and on a bad day they would hope to finish at least middle of the pack. The extremes range from people who want to guarantee a win every time by playing against weaker players to people who want to play much tougher players and hope for that "hot round," are rare enough that on average, it balances out.
On the other hand, tournaments are filling much more quickly these days, and I could see a time in the not so distant future where some cutoffs and adjustments will need to be made. I saw a few tournaments last year that were "Sold out" yet had fields of only 10-15 pros 10-15 advanced 2-4 in all the smaller divisions (AMM FA1 AGM, JR etc..) and the entire rest of the field was intermediate/rec/novice. That is not only frustrating and counterproductive in a competitive sense for people wanting to sign up am1/2 divisions or pro, but can also seriously alter the flow of play if there are large groups of rec and novice players, especially on more advanced courses. TDs for now should always be allowed to limit divisions based on what they think is best for their tournament, hopefully as DG grows bigger and bigger we'll start to see more division specific tournaments form on their own of necessity.
It's a nice problem to have if you're in one of those areas where DG is popular enough to fill events quickly but still a problem, especially for one course towns.