I should clear something up. I in no way speak for, or in any way make decisions for the retailers on Johnson Street. I just attend these meetings on behalf of the landlord as long as the merchants continue to invite me.

The current contest boundaries might just be a matter of logistics. Organizing even 30 small businesses is a fairly impressive feat. Plus it's being driven by volunteered time and resources. However, the idea of expanding the collaboration was brought up early on, so it might go further after they get some momentum going with the smaller group.
Even if it doesnt, I dont think that necessarily means that there will be competition between blocks, I think that the 600 block will organise itself, and will do some marketting, but I suspect that they will have different priorities when they do, and a different style. The more kinds of people we can attract downtown, the better. If the 500 block pulls the savy fashion hunters out of the malls, and the nerd block brings gamers downtown, while the historic chinatown district draws in the yuppy lifestylers etc etc, in the end it all supports each other.
This is the first promotion being done collectively by the 500 block merchants, with 100% buy in (as far as I know). But it isn't the first of this type downtown. The Historic Chinatown area banded together to create a rack card, and tackle a couple of other neighbourhood issues. A segment of Broad Street has been meeting and so has some of Store Street. Those are just the ones I am aware of. The DVBA provides a certain amount of help to merchants who want to do collective marketing - that is available to any and all within the DVBA boundaries. So no one who wants to take advantage of that help is excluded.
I am convinced that merchants self-organising in a grassroots way like this is going to be a tipping point factor in making our downtown really come alive. I find it really neat.