I think it's a phenomenal idea.
I do however have some initial thoughts.
1) This thread will eventually fall apart into a mess of posts. I might recommend taking the discussion to a more private area for those that are seriously interested in the project. Google Wave comes to mind, but likely not everyone has it (though there are options to invite people if you have an account, which I do and would be willing to use). Basically...there's gotta be a great way to filter out the good ideas from the bad and record them for future discussion. This is only based on similar past ventures that I've been involved in.
2)
One advantage of having a couple artists working together on a CD is that we could afford to do a serious run of disks. If we have 5 artists each contribute 2 or 3 songs to an album, they could each get 200 pressed CDs at the 1000 CD rate.
I think this is the most reasonable idea yet concerning HOW to go about utilizing this type of service.
If the site can initially be used to find other people like you (artistically). And then form a group to publish an album, it might be useful. But it won't be unique as there are lots of sites out there that do this type of thing in different ways now.
3)
I havent read the epicness of this thread but I read a few posts at the beginning and the end. I think this is a great idea and if nurtured the right way, and a certain standard of quality of music, i.e. you cant just bang on some boxes for 47 min and call it an album and then expect that just because you did it at home, you should be on the home recording label, but if its done right I think it can work.
^ Good point
If you're going to do a Last.fm type thing then you're not going to want to have any music on there that sounds like ass. People will turn it off sooner than they'll skip to the next song.
Now I know that "music quality" is completely and utterly relative to the listener, so it seems to me that some sort of "by-popular-opinion" mechanism for determining whether or not they should be allowed on the label as an artist. It's harsh...it's heartbreaking...but it's a basic and unavoidable fact when it comes to music...Talent is necessary.
4) I don't think that the focus should necessarily be on MARKETING the artists. That should be taken on by the artists themselves. So using a "Twitter-like" interface (as one of the posters suggested), or blogging or whatever shouldn't be a part of it. If the artist wants to tweet, use Twitter and link to it from your blog which is read because you have a link on the "Home Recording Label" site, which people found because they came across the "Home Recording Music Player" which they found on their buddies myspace page. Just my thoughts about how these things happen...
5) I've been waiting for an opportunity to do something like this for some time. I don't have the web-skills necessary to implement the site. But I do have a lot of project management background, so I can help in that regard. PM me if you think I can be of some help for the project. I will gladly do whatever I can to be involved.