The 3rd rule (geography) is meaningless. Just needs to be removed.
And you're right, the 2nd rule (rivalry) is meaningless without inter-division protected rival.
Here is my proposed division alignment with protected rivals side-by-side.
EAST . . . . . . WEST
OSU <- - - - > MICH
PSU < - - - - > MSU
WIS < - - - - > NEB
MIN <- - - - -> IOWA
PUR < - - - - > IND
ILL <- - - - - > NW
The stats since 1993 back it up.
The first column contains three numbers: the first is conference record above .500% , the second is =.500%, the third is under .500%.
The second column is number of seasons in the top 4 finishes and in the bottom 4 finishes in the conference standings (including ties).
School . . . . Record . . T4-B4 . .Wins
1. OSU . . . 15-1-1 . . . 15-1 . . . 106
2. MICH . . 15-0-2 . . . .12-2 . . . .94
3. NEB . . . 13-1-3 . . . .12-2 . . . .97
4. PSU . . . 12-3-2 . . . .9-2 . . . . .91
5. WIS . . . 10-2-5 . . . .8-3 . . . . .79
6. IOWA . . .7-4-6 . . . . 7-5 . . . . 71
7. NW . . . . 7-1-9 . . . . 6-9 . . . . .59
8. MSU . . . .5-6-6 . . . . 3-6 . . . . .63
8. PURD . . . 5-5-7 . . . . 4-7 . . . . .63
10. ILL . . . . 3-3-11 . . . 2-10 . . . .45
11. MIN . . . .2-2-13 . . . 2-9 . . . . .44
12. IND . . . .1-1-15 . . . 0-14 . . . . 31
Adding up the team totals for each division
DIV . . . . Record . . . . T4-B4 . .Wins
East . . . . 47-16-39 . . 40-32 . . 427
West . . . .48-13-41 . . 40-38 . . 415
So the only difference in records between the two divisions is one +.500% season and two West teams in 17 seasons going from a 3-5 to a 4-4 record.
There is no way that Minnesota and Indiana should be put in the same division. 80 records of sub .500% records and they together own 28 of them.
And in those 17 seasons, they have at least 14 seasons with one or zero wins.