The best answer I can give is "it depends." I've had kids bowling scratch when averaging as little as 130 when the only kids they had to beat averaged near 160. They didn't mind losing, so long as they didn't lose "to handicap." You also might find that if the prize fund is low, people won't mind being lower in the average category as long as they say they can shoe up and bowl with the best.
On the other hand, if higher bowlers insist the prize fund is high, they'll scare out the smaller fish and the league will be smaller.
Some leagues are successful with a draft, where you pair the higher bowlers with the lower bowlers in order to even things out. In my area of SoCal, such leagues are practically unheard of, because people want to bowl with the bowlers they choose.
Perhaps the best idea is to have an opening meeting even a month before league start, and get the concensus of the bowlers (I don't mean the majority). You'll hear how they'd like to see the league, and it might be something that none of us could have guessed.