It works in Spain, where reserve teams play in the same league structure as their parent clubs. Barcelona and Real Madrid's reserve teams are in Segunda Division this year. Barcelona's finished third in 09-10. Hell, Real's reserve team won the Segunda in 83/84. Germany has the same system as well. The reserve teams don't compete in cups and can't get promoted to the same level as the parent club.
This is good. It will get players to take the reserve league more seriously by putting them in a more competitive environment. Anything that improves player development in MLS is a big deal, because it means more opportunities for domestic players to shine and, eventually, start.