On the server, I currently play on (Tunkmon whitelisted server) there is an issue with AFK players taking up the legendary spawns while in their AFK machines. The server owner wants to fix the issue but also doesn't want to make the process of hatching eggs even more mundane/annoying. This would be a great compromise!
Just like the original post said, I think it would be best to make the hatching time of eggs in the incubator based on how many steps it would take to hatch the egg. An alternative would be different tiers of incubators that are increasingly harder to get/craft and the teir of the incubator defines how long the egg takes to hatch.
(NOTE:These numbers should probably be able to be changed in settings)
As long as this is kept as an optional plugin/option for worlds and servers I can't see how it would negatively impact the game and fix the ever mundane issue of hatching eggs. Should note I agree with the original post saying that the time it takes for an incubator to hatch an egg should be longer then how long it would take by running around constantly.
(NOTE: Again the exact number should be able to be changed in settings somewhere)
This would fix an issue fans even in the offical pokemon games have (Cough cough rubber bands over joysticks cough cough)