That system is almost the same as the one my guild used, except that we subtracted instead of dividing. There was also a sort of decay to prevent hoarding, because the gear in each new dungeon was always worth more points than the gear in the last. It wasn't a matter of hoarding points, either.
What ended up happening was that I would pay for gear that would have gotten sharded otherwise, and then I would be basically ineligible for gear that anyone else wanted for that many more days because I got a lot of gear that was 1-2 tiers down from current content. If someone was playing an alt, they only had to pay 1/4 of the DKP price at the cost of being lower priority for someone playing a main character. The guild leadership seemed to understand that gear should cost less when it was lower tier, but that never applied to someone who was upgrading from blues for the first time. And effort wasn't an issue until I quit raiding entirely.
Making gold was extremely difficult for me when playing a healing priest. It was punishing, actually, and merely being able to get gold for not getting gear would have drastically improved the game. Priest gear cost as much DKP as rogue gear, but fewer people were after it. I would have come out ahead, letting the rogues do some of my farming for me since my toon couldn't do it, and still gotten decent gear because my class was less played. Actually being rewarded for playing a class no one wanted to play would have been nice, instead of getting punished.
Even with the spec switch you have now, and with easier gold grinding, I still think that grinds are unpleasant. When I say unpleasant, I mean that I am no longer willing to play a game that feels like a grind. If I feel like a grind, I can go to the gym or go for a run, and have more fun doing it than I would grinding on a computer game and get much more out of it. Giving people an option to get significant gold by running raids is a huge improvement because it lets people get out of grinding. Not just "lazy" people, either.