After thinking about this a bit, here's what I'd recomend:
Allowed Material Initialy:
PHB, MM, MM3 (Lots of Eberron specific monsters), DMG, XPH, Eberron Setting Handbook, and Races of Eberron. (AKA, SRD, MM3, Eberron, and Races of Eberron).
What to allow potentialy later: Crunch from any other Eberron Book and other WOTC source as voted in to being allowed. Classes, feats, or books as a whole can be voted on to be added or removed, but only for crunch (Rules/character stuff)
Why: MM3 can be used by DMs with no real problems, and also opens up the use of the Warforged Scout. Races of Eberron has racial material, but no other setting content that contridicts anything in the base Eberron book, and should be usable enough without requiring anyone else to have it beyond character creation judges and players using it. Races of Eberron adds some nice things for all races and classes.
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Cannon: Eberron setting book plus anything used in an adventure afterwards.
Why: Owners of the other books can use the setting material, in which case it becomes cannon, but at that point everyone can see it since it's been used. This also gives free reign to allow for GMs to create their own material and use it without fear of being told 'No, this book says this is different'.
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Races: All races listed in said books above except the XPH races. Hobgoblins, being integral to the setting, are LA +0.
Why: The XPH races don't quite fit in Eberron as well with the Kalashtar and Inspired, and with the other added races already, and we've discussed Hobgoblins already before.
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Expanding the Rules:
New Content: New content can be proposed and voted on by the judges to be accepted in a manor similar to how it is done in LEW (Which works).
Precreated Content: Since we're already using non-core rules, books or rules from books can be proposed similar to how they are in Living Enworld, and must be approved, but on the Cavat that at least one of the character judges has access to the materials.
Why: We're already not core, so why not open things up a bit with approval? We don't have to go full books, where we can approve small parts of books (Swashbuckler of CW, Scout of CV, Racial paragon levels from UA, etc)
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Expanding the setting: Content created in game is Cannon (within reason, a player fixing the mornlands with remove curse because DM John says so won't go over well). Content from other books can be used in game, but it is not Cannon untill it is used as such. Events and metaplot of the world will be determined by the judges and game masters of Living Eberron, not from books and novels.
Why: This is our world, and besides, that keeps some things a mystery to the players.
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Base: Sharn. Either a Tavern, or perhaps a University spot (Morgrave University's Job Connection?).
Why: Easy to go anywhere from Sharn. Very central place to Eberron as well.
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Name: Living ENberron
Ok, maybe not, but it was a cute idea
