Keep playing Michigan-OSU at the end of the season, as well as PSU-Nebraska, Iowa-Wisc, etc. If it shakes out that the championship game would be a rematch, do the following: the winner of the original matchup gets a bye, like in the NFL. There's a good chance that with both teams being so good, the winner will be invited to the BCS title game anyway. Make the championship game into a Big Ten "wildcard game", between the remaining division winner (who lost the previous matchup) and the runner-up from the winning division. This would be for the rights to go to the next-best bowl game. Remember that the majority of the time, this will not happen anyway, and the championship game will remain a championship game.
Example: Michigan beats Ohio State to end the season. But it is OSU's only loss, and they remain champion of their division. Michigan gets a bye to the Rose Bowl/BCS title game. OSU has to play Iowa for the right to go to the Orange Bowl.
That way they can be in separate divisions for balance, AND play at the end of the year, AND still be playing for the Rose Bowl, AND not have a rematch. Everyone's happy.