Draug, that has several problems. In large states, representatives end up with many millions of constituents, and the connection between Representative and constituents is completely gone. That might not seem like a problem, but I think it is. Currently, Reps still have a motivation to be somewhat responsive to the needs of their constituents. But if you're Rep #16 out of 36 in Texas, why are you going to pay much attention to the individual needs of the people in some city of 100k? Right now, those cities/areas have a lot of say, at least over one Rep. Then, it would be gone.
To be honest, I'm not convinced our two party system is so broken. It would need a better argument than has been offered. As it is, progress is often slow, and that is frustrating to people outside the mainstream of either party, but that will be true no matter what. It would be a disaster if it weren't true -- the country would jerk around.
And yet, even now, the two parties do respond to any popular movement. If enough support for something swells, that movement will be coopted into one of the two parties, because they're both always hungry for votes, looking to gobble up new groups. Just look at this election. You think either party will oppose immigration reform again? I think not. The importance of that issue has been felt and will be responded to. So it has been in the past with even third-party movements like the progressives or the populists, which ended up getting what they wanted done by merging into a party.
The two party system works fine. It leads to stability and slow change, but that is a good thing, and it DOES lead to people's issues all being represented, eventually.