to use the set: simply unzip the .lg-folder in the saved_games-directory and then load it into the game.
reducing the leagues: I was thinking on that too, for example releasing a set without NCAA. Its possible, but its a ton of work ... steps would be (1) create the leagues you want (per hand), (2) create an appropriate number of players, export the player lists from the big set and import it in the new one (using the new ids); (3) modify all the things you cannot import/export: pitching arsenals for the pitchers (historic stats are lost as well, without any solution), coaching staff, financials...
I still hope that everything will get easier in OOTP2007, then I'll do a roster set avoiding all the mistakes I made with this one - promise

Its always a learning-by-doing-process (and I am still annoyed that I am not able to change the name files and using the schedule editor, for example...)