Over the air is not a very reliable delivery means. When tropospheric ducting rears its ugly head, anything can happen, including rebroadcasting the wrong station.
Perhaps a rule that allows any manner of delivery, but requires the translator to be close enough to the originating station that, under normal conditions, it is possible to receive the originating station off air with a good antenna and a sensitive tuner. I'll guess that is about the 35-40dbu contour, but maybe a bit farther away.
It should also be a requirement that if the originating station is off the air, then so should the translator. I know a lot of AM stations won't like that, but I think it is fair. Otherwise, you have established a commercial 250 watt LPFM service. I'm not saying that a 250 watt commercial LPFM service is necessarilly a bad idea, but you can't have it both ways.