I'm in 2 leagues that do this and it's the best way to draft IMO. I'll give a few details now and try to post more later. Feel free to ask specific questions.
To answer your direct question, the Commish and some trusted advisers come up with a list a few days before the scheduled draft using Mock Draft data and general consensus of who the Top 30 or so players are. The order is tweaked a little so it's not a "true" draft order. We do this so Jermaine Wiggins isn't the first player auctioned before LT2 or LJ. We set the market with one of the expected Top 3 players.
Everybody is seated in some sort of horseshoe or square configuration. When the draft begins, everybody who wants to bid on the player stands up, bidding begins with a designated owner and proceeds to the left. If you continue bidding you stay standing. If you want to drop out you sit down when the bid reaches you or the bid exceeds the money you have remaining. After you win a player, subtract the amount you paid from your total and put it on a post-it note in front of you for the other owners to see at a glance.
A) 2 - 1/2 rounds of players are sold via a poker style bidding auction by name (in one league the auction order is set beforehand. In the other we group the named players in tiers and allow each owner to nominate a player from that tier to begin bidding)
B) Then a half-round of picks are auctioned the same way (win the bidding for a "Pick" and you choose any other player available)
C) And then 2 rounds of picks will be sold via 1-time written blind bids using however much is left in each owner's auction account.
We allow $0 bids and only whole $ amounts. Every team MUST have 5 players at the end of the auction portion.
Yes, you can use all your money on 2 players. In that case your blind bids are 0, 0, 0. Then the blind bids are arranged from highest to lowest. Any ties are grouped together for random ordering within that number. Say 3 people blind bid $3. Those 3 are randomized but only come after any $4 and higher bids.
Someone with 2 players and $7 left may choose to bid 4, 2, 1 or 5, 1, 1 or 7, 0, 0, etc. When randomizing, if I have 2 bids of 0 and another owner has a 0 bid, I can't have both 0 picks before his one 0 pick. Basically, every owner gets a pick at that level before an owner gets his 2nd pick at that level, if that makes sense.
Then you go to some sort of serpentine for the rest and thus avoid all the meaningless nominations and $1 B.S. to fill out your roster.