I think this is a great idea! I purchased the $10 CD version, but had to get onto bittorrent to download the album (the mp3 version is already seeded and moving right along).
I wanted to purchase the deluxe set with the slipcase and blu-ray disk, but I though the price outstripped the content. I definitely would have bought it if it had included a 5.1 mix.
I think Trent's got the right formula this time. The incremental options and abbreviated "free" release should lead to great success than the Saul Williams album. Hopefully he'll share sales data this time, as well.

As someone who knows Jennifer (friend-of-a-friend) and has seen lots of her work in person, I can say that it bears nothing more than a passing resemblance to ugly dolls. It would be like Disney suing Paddington Bear for it's resemblance to Winny the Poo.
And, as Noen pointed out the level of craft and detail applied to the cotton monsters is far and above that of the simplistic and mass produced ugly dolls. They are wroth every penny.