A reader response system is a must. Personally, I think I'd actually prefer it without a numerical rating system -- I find myself too caught up in numbers already (is a 7 good? should I be offended? should I be thrilled? I don't know!). Just written feedback is fine, and might inspire more thorough analysis than I often see here, where people seem to rely on numbers to speak for them.

Payment is not neccessary for writers. Yes, writers have every right to make money, and I hope many here are. But like the sample page in the front of nearly every novel, it's good to provide a peek to whet the appetite. If readers want to charge, they can provide a few samples and continue on their own pay site. For this and other things, the ability to link a URL and give a bio is a must.

Non-monetary incentive for authors and reviewers is good. I suggest you permit authors and members who have a certain number of reviews some minor privileges -- allow them to get first look at new stories, or access to archives over a certain age (maybe those stories over 2 months old?). This doesn't cost money, it doesn't penalize non-members (they still get to read free porn!) but those who come regularly (cum regularly? Ahem!) and have seen most of the contemporary content will be inspired to access new updates quickly, or to see the beginnings of good stories.

If you can manage it technically, I'd suggest creating a system that allows authors to create their own "shelves" in the library and manipulate them on their own, forum-style: access to posting, editing, and commentary in their area only. I think this would reduce a lot of the maintenance work (how on earth Rabbit and Tiger keep up with this site I'll never fathom).

I hope this helps, and be sure to give a link to your site when it's up!