My house rule takes away the retrain option, but lets PCs retain lower level powers and give them the potential to learn extra high level powers.I'm confused. All classes already have the ability to retrain lower level powers. The benefit wizards possess that the other classes do not is the "double option / one per day" for their daily and utility spells.
I've got no problem with information storage that self-edits, but I do have a problem with information storage that self-deletes. There's an important functional difference there.That said, I have no problem with the self editing spellbook any more than I have a problem with rogues using a sling to send a blinding barrage of bullets at half a dozen enemies. Wizards do / are / embody magic. Their books are special. Heck, my computer is self editing and I'm not even a wizard.
Here's my solution:
They don't disappear from the spellbook. It's just that the wizard is out of practice with them.
When a fighter retrains Steel Serpent Strike and instead takes Spinning Sweep, it's not like the sword she used to make her Steel Serpent Strike vanishes. She's just stopped practicing that maneuver during her downtime, and so she's no longer competent at it.
Similarly, the wizard who retrains Sleep to take Acid Arrow doesn't watch as the spell vanishes from his spellbook. He just hasn't been practicing the Sleep spell lately, and so he's no longer competent at using it.
This seems to me like the simplest solution and one that maintains balance while preserving plausibility.
Daniel
If a player asked to do that, my first response would be a glower and saying, "Don't push it, or those are gonna start disappearing from your spellbook." My idea isn't so much to change the rules as to change the flavor-text. If necessary, I'd add a little bit of flavor text pointing out how difficult it is to get in practice for a spell, how it takes weeks to recall all the little gestures and words. Takes, in fact, about the same amount of time as it takes to gain a level. And they get back in practice with that old spell by neglecting practice with their new one.This is a great solution, so long as the DM is willing to allow PCs to prep their out-of-practice powers instead of their regulars on the off chance that a PC thinks it'll come in handy. Some DMs wouldn't allow it, so this solution depends on the DM too.

(Dungeons & Dragons)
Rulebook featuring "high magic" options, including a host of new spells.