"1) the number of bosses engaged, and 2) their health (the total current health divided by the total bosses enaged). If the average is less than 10% Deathwing automatically shows up and kills everyone."

I must be misunderstanding what you mean by this, because the way you've described it, if you had a single boss up then Deathwing would kill everyone in the zone as soon as that boss hit 10%. It would be literally impossible to kill one of these bosses alone. The only way to kill one at all would be to have multiple up, and to be specifically trying _not_ to kill the others, and even to keep their health high enough that you can take one of them down to zero without triggering the Deathwing zonewipe. Which would only be reasonably possible to arrange if most of the bosses were engaged by the same guild, which would go against the whole point of the sort of situation you're hoping to set up.

Even if that's not what you meant, the way you've set things up, assuming that you mean for the difficulty to reset when the server resets, what's likely to happen (on the larger servers, at least) is a top guild would just push it to the max possible engaged at once early after server reset, and then no one else would be able to do anything with them. Plus the potential for griefing for this is horrendous in a smaller server where that situation wouldn't happen, you'd just have your entire guild aggro as many bosses as possible without even trying to take them down first thing in the day. Since every boss aggro'd pumps it up, you don't even have to survive more than one at a time. Just keep throwing people into the zone.

This is the tricky part about developing stuff, and I think your thought process is a little backwards. When you're developing something like this, you don't want to think "what would be an awesome setup that could lead to the thing I have in mind". Instead, you want to think "this is the sort of gameplay I want to end up with; how can I create a setup that could only possibly lead to this sort of gameplay?" Instead of creating a setup and then tweaking out emergent gameplay you don't want to see, you design your setup from the start so that the emergent gameplay it creates is the goal you have in mind. (I know you were just throwing out a what if, but really, turning the board around is good advice in all sorts of situations. Sometimes you don't want to think through start-to-finish to figure something out, you want to think through finish-to-start.)