It seems like you guys are very afraid to ‘give away’ all your end game content too easily. So, you have constructed this tedious, convoluted MMR/PvP scoring system that attempts to act as a gate keeper to allow very few people to reach the ‘top of the mountain’ of progression rewards.
Unfortunately, this constant tinkering has caused no one to even leave the base of the mountain anymore. The top of the mountain seems like some kind of cruel joke. Which leads to apathy and disdain for your product (just look at the forums or user comments for your game!)
If you just removed them (3 and 4 star covers as progression rewards) and replaced them with various (generous) HP/ISO rewards, people would just be as happy! Then you could relax on the PvP rules (less point lossage) and even allow people to attack shielded opponents. This would infuse MORE points into the tournaments and allow people to make bigger gains and feel happier in the process.
You can then control the amount of three/four star covers you give away by how many users per bracket you allow and/or the range of winning spots for these covers. That is enough motivation for people to play, you don’t need these additional ‘carrots on stick’ to get people to compete against each other.
tl;dr:
So, in the end, this attempt to protect these valuable covers is what is screwing up PvP and making users miserable in the process. Just remove them and make it easier for people to move up the ladders. Win win for everyone.