The main flaw I see is that it wouldn't decrease variance optimally - you only have your friends mining for you, as opposed to the entire pool. You'd have to be communicating with every other pool member, exchanging PoWs, to reach the same low levels of block-finding variance, which would result in O(n^2) scaling. This may be fixable by making it so some nodes can proxy work for others - combine lots of small exchanges into some large ones, though this would probably require trusting them.

As an aside, while reading this thread I couldn't help but think "This approach is to P2Pool as Ripple is to Bitcoin." Not sure whether that's a good or a bad thing.. Ripple is undoubtedly more scalable than Bitcoin.