If the rules aren't there to represent the in-setting physics then they serve no purpose.
And to what "extreme, deleterious effects" do you refer here?
Just off the top of my head:
"Anything not permitted is forbidden." When the rules of the world
are the physics, they determine what is possible to do. Hence, if the rules don't cover it, it doesn't exist, because the rules
are what the world is, hence, what the rules are not, the world cannot be. This is the natural direction toward which such design tends, at least in D&D. That which cannot be spoken of must be passed over in silence.
As noted above, the endless reams of narrowly context-specific modifiers and alterations. Every situation needs its modifier, otherwise it's gibberish--again, rooted in the idea that for every thing its specific rule, and a specific rule for every thing, which is the conceptual heart of "rules as physics."
The problems of PrCs, ACFs, substitution levels, etc. If there's a cultural difference between Paladins from continent A and continent B, it needs to be represented within the rules, or it doesn't exist. The proliferation of these ultra-hyper-specific build options--"bloat," as many call it--directly arises from the need to have everything represented by a rule, to make every nuance of physical difference explicitly encoded into the game.
Ridiculous optimization gaps. A ruthlessly-optimized character will beat the pants off of a casual, built-for-fun character in this context, because ruthless optimization means capitalizing on every possible situational and contextual bonus to eke out the greatest benefit. Players are actively encouraged to do this, leading to an obsessive pre-building culture-of-play, rather than a culture-of-play that engenders spontaneity and creativity.
For lack of a better term, "backstory exploitation." Backstory is no longer an optional flair or a fun seed for future adventures. It's now a critical part of the character, looped into the ruthless optimization as much as any other part. Of course, 3e in particular was rather sloppy in its design on this front, which is a distinct harm, but the margin of error was razor-thin to begin with because of how much benefit can be wrung out of the "right" backstory--strangling interesting or unusual options (e.g. "bad" race choices, quirky backgrounds like a Spy Paladin or an Urchin Wizard or a halfling barbarian or what-have-you).
I'm sure I could come up with more. All of these things are, in one way or another, rooted in the need for every physical thing to be represented by a discrete, specific rule, and the need to have discrete, specific rules for all things that are possible/valid/real.