I agree with being able to trade players, and with onnestabe's comment about rigid rosters. QB, 3x WR, 2x RB, TE, with no kicker or defense. I consider those positions almost throwaway positions anyways... as long as I have a starter I don't care; it's tough to predict who the good kickers and defenses are going to be anyways so I don't even bother wasting draft picks on them unless I'm required to fill my starting lineup at the end of the draft. I notice that a lot of other people take this approach too.
I absolutely agree that this would only work with an auction-format draft. I disagree with the original poster in that I wouldn't favor (and in fact would be strongly against) any restrictions on how colleges may be traded, other than ordinary roster restrictions - so I don't think trading should be limited to one-for-one. Speaking of roster restrictions, some sort of scheme would have to be worked out. Number of colleges? Number of players in your available player pool? Number of players in your available player pool who scored above a certain baseline of points in the previous year?
About trading players... I think that trading players is a good idea, however, I feel like it would be in keeping with the spirit of the game for the owner of the college to retain significant rights with respect to the players of his college. The first idea to come to mind is that you cannot trade a player away unless you own his college - so if I owned Tennessee I could trade you Peyton Manning, but if you wanted to get rid of him the only options open to him would be to trade him back to me, trade me for Tennessee, or drop him. In my opinion, if a player is dropped he should revert back to his college's owner's player pool.
I also think that, as it's a dynasty league, all players should revert back to their college's owner at the beginning of the off-season. They could then be traded again.
I did a little bit of analysis, and it looks like the results are surprisingly balanced. I looked at the top 10 QBs, RBs, and WRs, and the top 5 TEs. (The top players at each position are completely subjective, of course, but I think all of our opinions will be similar.)
The results: only 6 colleges had two players on the combined list - USC (Palmer and Leinart), Syracuse (McNabb and Harrison), North Carolina St (Rivers and Holt), Miami-FL (Gore and Portis), North Carolina (Crumpler and FWP), and Oregon St (SJax and CJ). Even better, there's only one pairing in there (Miami's Gore and Portis) that I'd consider unusual in an ordinary draft league - and even that would be understandable, if a stretch - Portis's value is all over the board.
In conclusion... I like the idea a lot... sign me up!