I think the best way to increase Arena Participation is to give some rewards for teams/players with certain rating. Rewards like Scrolls of Deception, various fun items, or other vanity items for attaining certain ratings (ex 1500, 1700, 2000). This can either be at the end of the season or as they reach that rating. Right now, there is no reason to rank up in non-soloq arenas unless you are going for titles. For gear, spamming soloq until you get to rating requirements is probably the best way to get gear on Lordaeron due to the large number of "2s for 10 games" people and the large amount of P2W Icecrown players. Also, giving rewards that are proportional to the AP gain seen in 2s, 3s, 5s may also encourage people to actually play 5s instead of win-trading for Arena Master title.

As a side note, Blizzard most likely removed the rating requirement on gear in Cata to increase participation. When they changed to the system they have now, which is RNG and a lot of grinding with better gear at higher rating, participation fell off a cliff. Obviously we can't just remove rating requirement if we want a true WotLK experience, but something needs to be done to increase participation on the ladder.