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Basically, this is how I envision this tournament:
1st stage - group stage - every "good" player plays against every "evil" player. Choose from the full list, but no more than 2 repeats. (with 8 games, 2 games per race + also, if there are no more elves left, for example, then you'll have to choose them).
playoffs - it's clear. The top players among the "evil" ones face the last ones from the "good" ones, and vice versa. Races are chosen from the full list - if you advance, you can't play as that race anymore.
semi-final/final - it doesn't matter anymore.
templates are always chosen from the full list.
plus, you don't have to wait for the next draw; you play when you have the opportunity. The idea of the tournament - good versus evil - is not violated.