Don't write this on there, but have default at 20, minimum at 1/3/5/10 and obviously no maximum. I'd pay $5 if its good :)
I think you're right that it's a model that would work well - if I could raise the money to code it I'd happily make it open source after that (running costs means it'd have to cost something to use on someone's server).
This is the kind of thing that will provide value if it's quick and focused. Ads would wreck it!
But do make it affordable though ;)
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[1]: http://www.metafilter.com/95152/Userdriven-discontent#325604...
Re free - if I raise the money to cover my living costs, I'll make the game open source. You'll easily be able to spin it up on a VM/cloud server (or your home comp if you're brave/foolish) for free! What's better, is that you'd be able to modify to teach your own language/project.