First year only would definitely make it easier to understand and to enforce. I guess you just have to hope that after that you go to tournaments that have enough C wrestlers that you don't get your butt kicked every time. If everybody were abiding by that same guideline, there would probably be more true C wrestlers at the opens to compete against.
I have an 8-year-old who has wrestled 6 tournaments now over two seasons (2 opens listed as D class and 4 novices) and the best he has done is second. He got a second at Rossville entered as a D and his bracket included only D and C wrestlers. His two wins came against other Ds, not against the C wrestler for the gold. So while he has placed at an open now, it was primarily in competition with novice level wrestlers.
The worst feeling in the world for a new wrestling kid and parent is to get on that mat for the first time and get truly manhandled by a kid who either has much more non-tournament experience (i.e. an older sibling who wrestles), who wrestled a full season already, or who has enough natural talent to be wrestling C right from the start. The kid who wins easily in that situation doesn't learn much from the experience either. I understand wanting your kid to experience some success, we have been on the receiving end of a lot of losses between my two boys so far and it's certainly not as fun as winning. But the spirit of competition also means that if a kid is good enough to wrestle C from the start, maybe that's where s/he should start. Mine will do maybe two more novices this year and will continue to enter as a novice at his opens unless he wins somewhere, then we will probably enter as a C.