We tried something like that once. I think it was Germany, Italy, France, USSR and China against USA, Japan, UK and ANZAC. We had to alter the setup some, in fact I think we ended up giving UK a few more land units. I also came up with a new list of NOs for Russia, Germany and France got some too. It was cool seeing France stay in the game for a few rounds.
As for the neutrals, I think we just made them all strict neutrals and used neutral blocks (Europe, S America, Africa, Middle-East and Mongolia) so attacking one neutral doesn’t turn all other neutrals pro-other side, just the ones in that block.