Mixed feelings.
On the one hand, I think why not. The world is changing, technology is improving, why not allow it?
On the other hand, I've taken a couple of online classes (from a totally reputable source), and to me the quality of experience suffered. It's difficult to replicate the experience of being in a classroom, and especially the experience of law school classes. Having to stand up in front of a room full people, making arguments on the fly, learning to control your nerves...these are all important lessons that can't really be experienced online.
Does that mean that online is automatically bad? No, but I think we have to accept that it's different and (at least in some ways) lacking.
Your Honor Society idea is interesting, although I'm not sure if the market exists. The target audience for online, I think, are the 130 LSAT crowd you mentioned and working adults. Anyone with a 170 is likely to want a traditional, prestigious law degree.
I'm not saying 170 lsat folks would jump boat to a new school, but offer (in theory) it as a program where they are at. The way that many have weekends and evening programs already, but online.
To be fair 170 people go to places like Cooley to get full ride scholarships as is.