The idea of the Scottish Conservatives becoming a separate entity to the Conservative Party is nothing new. It has been talked about for years in Conservative circles and there is a good case for it. There certainly has to be a re-alignment of the centre-right in Scotland to more effectively fight the 'left-centric' parties.
MPs elected for the new Party would then support the Conservative Party in the Commons.
There is a precedent for this in the UK, before Heath the Ulster Unionists operated this way.
Here is Murdo explaining himself.
http://playpolitical.typepad.com/uk_conservative/2011/09/video-murdo-fraser-msp-says-he-doesnt-want-to-disband-the-scottish-tories-but-he-does-want-it-to-hav.html
I did have a good laugh though at some of the comments about, particularly from Keith. Talk about a dream world!