Yeah, the way initiative is done in 7TV, it only really works (with the rules as written) if you do one side against another side. If you have more than two sides or lots of allied factions you need to tweak things. In addition, as Karl says, in games with lots of players there is the issue of waiting for your turn. For these reasons, I would think the way to go would be to treat one team of many players as one single side in regard to game turns. This will keep the game moving and keep the countdown deck requirements predictable.
When we've played this sort of game, we've calculated tokens in the normal way but paid them into a kitty that everyone on the side has access to. Any special allocation of tokens, etc, can then just be paid into the kitty. This might not feel exactly right, but is certainly the easiest solution.