Ben--
#1, Thank you for not declaring that 1-5 ratings will never do, that only 1-10 can accurately codify your listening preferences. I myself converted my 1-5 ratings to 1-10 and it turned out to be one of the silliest things I ever did, or at least it ranks in the top 5,000 this year.
Looking at your suggested plan confirms my current hypothesis: we really only need three ratings for the music we like, the other two just describe how much we dislike something. However, I think you ought to start out with 4 ratings fojr music you listen to, and reserve 1-star for music you don't want to listen to. No sense rating stuff you won't listen to anyway.
So here is my suggestion, and the rough % distribution of each level in my library. I have to estimate because I'm away from my main library.
5--Absolute favorites I can't live without. These songs tend to be of a very similar style/genre. Without applying any rule, it ends up being 5% of my rated tracks or so, but not more than 10%.
4--Songs I love. They may not be the bell-ringers that 5s are, or they may draw from genres that aren't necessarily always my favorite, or something. 15% to 20% of my rated tracks.
3--This is where I put songs that I like but not love. A lot of the pop from the 70s ends up here, pleasant to listen to but I don't do looking for it. 30% of my rated tracks.
2--This is where I put most of the Aerosmith or ZZ top or Jimi tracks that I like ( but not love) but can only take once or twice a month. Each time I listen to them I start out thinking, "Gee, why isn't this track a 3?" But by the end of the song I'm tired of it and I change it back to a 2 again. 20% of my rated tracks.
1--You guessed it--20% to 30% of my library (maybe even closer to 40%) are tracks that I wished never existed. At one point or another I paid good money for them, and that's the darnedest part. So if you're building a library from scratch I recommend you stop buying CDs and rent your tracks first. Try Napster or Performer Digital.
No Star--Make sure you don't rate songs you haven't actually listened to. I had a lot of "longer items not worthy of a rating", concerts from etree.org, for example. I finally went through a few of them and most of those are now 4- or 5-stars. Imagine: a 2-hour track that's worth a 5-star to me, and I was missing it all this time.
As for the number of plays, I definitely think this should alter a rating. I occassionally upgrade 3s and 4s whose number of plays puts them solidly into the next level, and similarly I've downgraded museum items that I never seemed to play. This can be educational: I have a couple of tracks from the Carpenters (!) that started out as 2s and ended up as 5s. Go figure.