Actually, this is an incredibly common mechanic in MMOs and frankly I'm surprised they've not introduced something akin to this since the inception of PvP, considering how competitive LD is.

And, as OP suggested there only being a two-attempt setup, it wouldn't even be as bad for spam as trade windows are. Honestly "spam" is a horrible reason to oppose this, consideirng you can already just spam people with trade requests if you want; duel requests will change absolutely nothing in that regard.

Too distracting? What exactly will the duels distract you from? Snipe herding? Opening lockboxes? Standing around doing nothing?
Again, it's a common system in MMOs to have people duelling in the middle of the towns and there's generally no problem with it. Hell, it gives onlookers and bystanders something to watch whilst in Haven; it actually adds some entertainment value.

~
Although I would reckon it wouldn't have the LD classes; as they were designed to be used in conjunction with each other for the sake of a multi-party match. 1v1 with LD classes would just be stupid for duels, so would be better to keep it just normal setups.

And the "ring" thing would be far too restrictive. This isn't like other MMOs where you stand facing each other and click skills; movement is integral to survival in SK, so locking players to one small area would just result in frustration. Instead of a ring, you want a timer to clock down. No one's dead within that timer, it's a draw. It allows people to grief by just running away and clocking out (ofc, leaving the "area" should be a forfeit), but it's not as bad as the grief people would get for, say, spamming GF or polaris and keeping people KBd outside of the ring until they auto-lose.