Losing limit bar on entering instance = good idea.

In FFVII, limit gauge filled as you took damage. It should fill more quickly the worse shape you're in, and be set up as a "desperation" move, rather than as a farmed TP-style move.

In FFVI and FFVIII it had a % chance of kicking in based on the character's invisible "crisis level". This approach would allow players some control over activating their limit abilities, but would also entail some additional risk on their parts.

Of course, in a FFX style system of deliberately farming for overdrive, the devs could counter pre-farming by putting the enemies into overdrive after they're hit by overdrive moves, and balance the overdrive gauges to fill up toward the end of a battle, encouraging players to save it for a finishing blow or risk making the fight more difficult.