I have a theory about "bad" game design and why the online RPG community is so forgiving of it. It has two parts. The first part addresses what makes a "bad" game and why one person's crap is another person's treasure. The second part delves into the history of RPG design.
An RPG can hook you into it in one of two ways. Either the surface elements - the setting, the art, the concept - are so compelling that you want to play it, or the mechanics offer a more efficient, interesting, or fun way to do something.
Games with objectively bad design but good sales usually have a very compelling setting, good art, and/or a concept that happens to hit the current definition of cool right on the nose. These games stand out as "bad" because people play them despite poorly designed rules. The reward in terms of feel outweighs the mechanical hindrances.
I think the Internet amplifies these games' popularity, since a lot of people on the 'net read but don't play games. In these cases, the bad mechanics never even become an issue. There's two games I can think of off the top of my head that have vocal followings online, but I've never met a person in meatspace who bought and liked them.
So that's my first theory - the surface elements of a design can prove so compelling that a gamer will ignore poorly designed rules. The prospect of playing a super-intelligent ham sandwich outweighs the poor rules used to model the world of super-intelligent ham sandwiches.
So how did we get to this point? How can surface issues mask bad game mechanics?
I think that, historically, AD&D 1 and 2 were so muddled and confused that people expect bad mechanics. If the fastest car in the world can go 15 mph, a design that can shudder along at 17 mph is a breakthrough. I also suspect that a lot of people houserule or revise material without a second thought. I've seen plenty of games of, for instance, Feng Shui where the health and initiative systems were kicked out the door and replaced with a spur of the moment adjustment to the game. Despite having unwieldy mechanics in those spots, Feng Shui is still a fun game.
Really, that's what it comes down to. Is the game fun? In some cases, the fun of being an intelligent ham sandwich is enough to make you put up with poorly designed rules. If a gamer develops an emotional attachment to a game, which is entirely possible given how personal running an RPG campaign can be, he might even grow to like them. He's like the young couple with a newborn. Of course their kid is the smartest, cutest, healthiest baby in creation. It's *their* kid. I've never met anyone who had an average kid. By the same token, it's the rare fan of a niche game who's willing to admit it has flaws. Usually, you hear the same, tired line about "D&D is popular because people are too dumb to know any better" or something similar.
The games that link surface coolness with good or adequate mechanics are games that go on to become breakout hits. IME, games with a cool setting and poor mechanics tend to develop a fanatical, niche following or flare up and die in a short cycle.
Personally, I think this process is in the midst of breaking down. D&D 3e is such a slick design that non-WotC publishers are going to have a lot of trouble competing with it on design terms. Making a game that was better than 2e was like outrunning a cripple. Trying to outdesign D&D 3e is like bringing a soapbox derby car to the Indy 500. Other companies lack the respect for game design and the resources that WotC puts towards creating stuff.
BTW, the only reason that WotC stuff seems more "broken" than the typical d20 publisher is because:
A. The typical WotC book has at least 20 times as many people buying and reading it.
B. The "baby effect" I described above prevents many people who follow d20 companies from seeing the flaws in their products.
Oh, there's one final thing I forgot about - RPGs are a social activity. As long as you're having fun, the rules can be as bad as you want them to be. A lot of games like Munchkin or Grave Robbers from Outer Space aren't very good designs when compared to boardgames like Puerto Rico or Carcasonne, but the act of playing them is socially enjoyable. It's fun to knock you buddy down a few levels in Munchkin, even if the game is heavily based on luck and tends to take too long. It's a social game. RPGs fall into the same category.