In my opinion, the entire skill system, while a tremendous improvement over previous version of the game, has very serious flaws that became apparent over years of play. However since it seems skills always take a back seat to combat, people have clamoured less for changes and it has seen less analysis, which I will try to remedy with this post
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Firstly, the allocation of skill points per level (with the class and cross/class skills) is a pain, especially for a poor DM trying to create mid to high level NPC... it takes a lot of time for very little return and yet these skill points can become very important, especially for Rogue NPCs (even the game designer frequently make mistakes calculating these). In that regard, the simplification offered by the AU rules or C&C which basically amount to +1/level for a class skill is a breath of fresh air for a poor DM. Some form of this system should be part of the main rule, at least for NPC and perhaps as an option for players.
The other main problem is the extreme facility to abuse the system and generate ridiculously high skills at even low to mid level. A 4th level bard can easily get a +14 diplomacy (Cha + skills + skill focus) and thats whitout synergy and magic ! This creates a kinf of arms race for skill for opposed role and a difficulty to set DC for unopposed role... This is less of a big deal for D&D where skills play a less important role, but try a sci-fi game with D20 future or Starwars where a 4th level PC can easily hack everything under the sun (including hacking unlimited wealth as per the rule !) and can easily cripple an adventure.
A sub-point of this problem is created by the take 20 rule. At first I loved that rule and though it was brillant but it has unintended side-effects, notably what I call the all or nothing locks. With this rule it becomes almost impossible to properly challenge the thief PC with a lock. Let's assume a thief with +10 of Pick-Lock. If he takes 20, he can open any lock below 30 automaticaly, but never a 31. Therefore, its always an all or nothing propoosition if the thief has time. If he doesn't its even worse. Indeed, so that the lock can't be opened by everyone, it needs to be at least DC 25. But in that case, even with a very reasonable skill level of +10, it becomes almost impossible to do (less than 25% chance)... Of course this can all be solved by saying that the skill cannot be retried but this is an example to show that the take 20 rule has removed an essential element of the drama/chance of the skill test in many situation and transformed it into an all or nothing proposition. The solution is probably just to remove that take20 rule and keep only the take10, but this must be rethinked...
Finally, the skill system makes it far too easy for anyone to get any skills therefore depriving the skill-class of their niche. I agree that the earlier editionw where only the thief could move silently was too restrictive and unrealistic, but now its the reverse since its very easy for any class to be as good as the Rogue in at least a couple of thieves skills... which totally devalues these classes (except as brief 1-level of multi-class to get the skill-points). Again other systems such as C&C better implement this since albeit anyone can have a natural ability to climb, ms, hs etc.. only the Rogue and other such classes can truely master-it and shine at these skills, which is essential for the viability of these class...especially considering that magic has always also encroached on this territory with spells like invisibility silence, etc. In short, the current skill system has killed the Rogue by removing its niche and trying to compensate by giving it more combat abilities (better sneak attack), which only transform him into a semi-ranger or at any rate still a poor fighter. In previous editions we almost always had someone playing a Thief at my table, now, after a few months of experimentation at the beginning of 3e, no one has ever taken one...except as a multi-class...
And so there you have it, why I think the skill system, while good on the surface, is one of the worst offender of 3e/3.5e....