I only know UA system of Flaws, you have seen a hundred times more books than me, so I'm sure you know much better systems for this than the UA one. However I don't find the UA a terrible system, with some caveats.
Psion said:
To me, "with appropriate DM oversight" is a way of saying "it's a hassle for the DM."
Such a warning doesn't mean that much to me. It is there probably because the variant "takes away" something to the PC in order to provide the benefit, and so it's a heavier modification compared to just letting a PC take a feat or spell.
But badly-designed feats or spells have caused me "hassles" before, even without that warning. Actually I wish there had been a warning sometimes
Psion said:
First off, flaws grant bonus feats. That's a very exploitable loophole. Many feat chains are constructed assuming you only get so many a level, and some PrC entry requirements are similar. Handing out bonus feats tends to break those feat chains and PrCs.
Right... first of all it's a "loophole" only if you allow players to take as many Flaws as they want, and much worse if you allow more than one flaws system to be exploited by the same character.
I allow characters to take flaws, but only one has been interested (tho he's thinking of it to happen as a consequence of adventuring, so it hasn't taken it yet). Let's start with one and see how it works... i'm not sure if I would allow the second anyway. But with such a low number it should hardly unbalance the game.
I disagree however about the feat chains. If a feat is designed not to be taken earlier than a certain level in the game, it has a BAB requirement, not a number of feats required. Because:
(1) fighters could always manage to complete a feat chain in less than half time as anyone else, if the only requirements are previous feats
(2) if a designer's target is to let a feat be available at a certain level, reaching that target by planning a series of requisite feat is just more complicated as requiring a BAB or base ST for example
Same applies to PrCl entry minimum level. Some PrCls require many feats to qualify, but that's just because they want Fighter to be nearly the only to qualify, which isn't IMO a good thing since the start.
Psion said:
mechanical advantages for roleplay disadvantages.
I very much agree with you that this should not be used in D&D. RP quirks should just be free, and bad quirks may turn out not be real disadvantages after all. UA Flaws aren't very much roleplay disadvantages however, they are very solid mechanical penalties.
But of course they have their own flaws (oops...

). The Flaw which gives you a melee/ranged attack penalty is a very bad idea. A wizard does NOT have a penalty at all from that, unless he uses a lot of touch/ray spells. It's too easy to get the feat for free. Same thing for a Flaw that gives you a penalty to a stat of choice, when one could just drop it on the dump stat.
However a Flaw which gives you an unavoidable penalty is fine for me, such as:
- less HP per HD
- a -4 to one saving throw
- a -8 (IIRC) initiative penalty
- large penalties on Listen & Spot
- an unnamed AC penalty
Some less than the others, but all of these apply to rolls or stats that you cannot avoid to use, and therefore they are a price you're definitely going to pay early or late.
Psion said:
some flaws fall into this trap. The basic idea is to give you a penalty at what you weren't good at anyway. You weren't going to be needing that ability anyway. In a game like D&D, with a team environment, these types of flaws are not flaws.
I admit this is something I haven't though much before

Usually I was more afraid of players taking a flaw in something they're more good than what they think they need.
IMXP however no one keeps his HP or AC to a minimum just because they're "not good anyway". And e.g. it's PC with a low ST that takes Great Fortitude/LReflexes/Iron Will. It could be possible for a real min-maxer to try this trick, but I wonder if it's really worth for just one feat (btw, notice that all UA flaws give a penalty which is twice as big as the bonus given by a feat to the same thing).