4 teams, host is in for sure, but it guarantees that the host is very strong. Only downside is that they wouldn't have a year to prepare.
That's the crux of the issue. A big sell of the Memorial Cup is that it is announced well in advance and the host city has lots of time to prepare and sell tickets, and most people decide whether they're going or not well before the season ends.
So you're stuck with the issue of whether to have a [potentially] poor host team in with 3 champions, or to have a strong team without the time to prepare that they want.
I know there is pressure to shorten the tournament, but I would ultimately like to see it lengthened and expanded to 8 teams. Take your 3 league champions, the 3 teams with the best record in their league, and the host. To make an even 8, have a wild-card of the highest regular season record that isn't already in the tournament, or do something like in curling where last year's Memorial Cup champion also gets a bye into this year's tournament.
With 8 teams, whether or not a host team is weak has less relevance than in a 4 team tournament. It also puts more local teams in (bringing nearby fans) as well as allowing out-of-market fans to see more players in the other leagues (I'd love to get to see McDavid play in junior, but short of planning a trip this spring, that's not going to happen).