Voting out congressional incumbents failed this year, showing the anti-incumbency movement to be a clear letdown. For some years many groups and their websites have been advocating voting out congressional incumbents as an effective means to reform government and make it work better. Two of the better ones are Vote Out Incumbents Democracy and Tenure Corrupts.

Incumbents win re-election to the House roughly 95% of the time, and to the Senate roughly 85% of the time (Open Secrets).

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... for equalizing the amounts of money candidates or parties spend on campaigns? It seems important to try to develop the playing field by making money from any source is less of a factor in choosing leaders for our nation.

In 1996 several colleagues and I argued for a limitation on the source and size of contributions to parties (i.e., an elimination of soft money) in exchange for the freedom to spend hard money as they deemed most efficacious. This recommendation did not become part of BCRA and it is no surprise that party independent spending in presidential and congressional elections has exploded. In the two elections before BCRA, party independent spending totaled $3,866,977 in 2000 and $3,645,408 in 2002; after BCRA, the comparable figures were $264,524,078 in 2004 and $223,746,652 in 2006.

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Wikipedia has a fairly good overview of this issue -- how and why a two-party system evolves, and what the pros and cons are.

Based on the analysis there, I would suggest that there are three pillars to two-party domination. A solution would have to address one or more of them:

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The following article explains clearly how our current voting method (called "Plurality voting") automatically leads to a duopoly:
http://www.masquilier.org/republic/election/plurality-duality.php

The solution is of course to have a better voting system:
http://activistsolutions.org/node/164

While there are many political parties that attempt to run candidates for legislative seats, there are only two that have any reasonable chance of winning a seat in any legislature. These two parties are the Republican Party and the Democratic Party. They have jiggered or rigged the system to their advantage in order to maintain political power

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Toward the end of your piece, you wrote:

The legislation (in the form of an interstate compact) would take effect only when enacted, in identical form, by states possessing a majority of the electoral votes—that is, enough electoral votes to elect a President (270 of 538).

I would add another explanatory sentence here, that fleshes out the implications of the delayed enactment. Something like: Until that time, participating states would continue to allocate their electoral votes as they do now.

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It seems to me that the voting machines that rely on computer based counting of votes are inherently faulty in that there is no fool safe way to insure fair elections. The counts are all on computers and it is computers that do the re-count. With no paper trail, it is impossible to guarantee all votes will be counted.
solution: do away with computer based voting machines and return to paper. I believe either Minnesota or Wisconsin has this and are very happy with it.

There is significant concern that these machines can be manipulated or malfunction.