I took a course in high school that used that grading model before (minus the gaming terms ofc). It was an online, at-your-own-pace class in one of those subjects I find interesting but would absolutely hate to learn about in a traditional classroom environment. The grading scheme was indeed awesome and motivating. Completing the next exam/assignment ALWAYS meant your grade went UP, so let's do it now and see what grade I have then! IIRC I finished the course far before the end of the term, which was an additional reward as it allowed me lots of goof-off time in the computer labs.

Of course, it can be a bit awkward to explain the F on your first interim report card, but if this kind of grading became standard that wouldn't be a problem. :)