Spence,
I like it man, it is an interesting idea. So in other words, you would take care of all printing and distribution and all they would have to do is rent space from you?
I can't see how you would have anything to loose by giving it a try. A suggestion would to also work with any local schools, churches, and hangout spots as well as the businesses. The part about putting an article in the middle is smart since it will help people have an additional reason to look at your flyer. Basically it sounds like you are starting a small newspaper. Another idea for you is to review a business that advertises with you every month. Obviously you won't want to state a bad opinion about them (don't bite the hand that feeds you

) but just review their services in a fun to read format.
Something else that you could consider is this: When you come into the town where I live, there is one main intersection that the majority of traffic flows though. Half of the businesses are one way, and half are the other. Some smart person put a large board there (5'x10') and charges each business to have their name and an arrow pointing to them on it. I heard that they charge like $30 a month for a spot, and it is full with 10-15 businesses on it.
Keep us posted on this man and best of luck!
Mark