So instead of just turning down the detail, you want a new system with bugs of it's own to do it for you? My card sucks, and I can handle large battles (100+) except for the periodic pauses - which are BUGS, not features. Trying to fix one problem with a complex solution that will include problems of it's own is amusing, but it better be toggleable in inis. You guys can have all the constant LOD adjustments and badly timed dynamic model swaps you want, I'm fine just configuring my game appropriately and not owning really old hardware.
Amusingly, older FPS's tried to do this sort of thing, cutting out various effects etc at say 20fps. It never worked, because it takes work to implement and thus causes lag of it's own, which causes more work to be done, which lags more. Introducing overhead (in a nasty hack into an already not-very-efficient 3d engine) is an interesting way of making it FASTER.
Instead, try buying a $80 8600.
If you REALLY wanted this kind of 'I'm poor' dynamic LOD, do it *before* battle, based on number of dudes. Don't do it dynamically in a feedback loop that the system is going to skew - simply say 'battle involving more than 90 guys, halve my LODs'. Doesn't need any processing in battle, doesn't swap assets, doesn't need a bug-filled hack, and is 100% configurable to people's systems. Thus I suggest the ini allow you to specifiy LOD multiples for various battlesizes - this would even allow me to play 500-man battles, just by entering a line in ini.