Seems like it would encourage tanking maybe even more - if you're out of playoff contention, tanking will now lead to a better lottery chance AND you've still got a shot to make the playoffs. If draft position is determined by where you finish in the tourney you'll have teams tanking in the tourney itself, which is much more embarrassing for the league. The only thing that will mostly eliminate tanking is the old "each lottery team has identical odds, and all picks are randomly drawn" format, which I wish they'd go back to.
I still like the idea if the tourney is single-elimination, it'd make the leadin to the playoffs more exciting and allow one of those young teams that heats up at the end of the season to sneak into the playoffs and potentially scare the hell out of a top squad.