Now, as for game-wrecking house rules, the "Ridiculous House Rules" thread on the Wizards.com forums (
http://boards1.wizards.com/showthread.php?t=106389&page=1&pp=30) is a true museum of things that can really wreck a game (looking there for a nice sampler of really bad ones).
1. Since undead are healed by negative energy, and negative energy is evil, and aggression is evil, any evil act near an undead heals it, and attacking an undead heals it since you're committing evil aggression towards it (unless you're using holy or blessed weapons).
2. Elves and half-elves cannot use any weapons of iron or steel, and are limited to wooden weapons.
3. Human PC's have to make a saving throw to disobey any command or suggestoin said by an Elf, because Elves are so wise and respected.
4. No magical healing exists. Other magic exists, but only natural healing occurs, at normal PHB rates.
5. The DM assigns all PC's races and ability scores for them, and all PC's begin as 1st level commoners to reflect what they did before adventuring, and must earn their first PC class level in-game through adventuring.
6. You can only ever carry 10 potions and 10 scrolls, no matter what kind of storage equipment you have or preparations you make.
7. If you wear black clothes or armor, your alignment automatically starts to slide towards evil, because only bad guys wear black.
8. Killing an elf is an evil act, regardless of circumstances, and elves are all immune to illusion and enchantment spells.
9. Non-elf PC's are always slaves of elves, and if you plot rebellion, the gods strike you down with lightning or NPC Paladins come and kill you engaging in an evil rebellion against the good elves.
10. NPC's don't have to prepare spells, they can spontaneously cast off of any spell on their class list. PC's still have to prepare spells.
11. No magic items looted from NPC's never work for NPC's, they just cannot be activated, end of story, not divination can reveal how, no Use Magic Device check, nothing.
12. Failing your Sense Motive vs. their Bluff means they have effectively Charmed you and you'll do whatever they tell you to do because you believe it will be a good idea.
13. All Elves get a free level of Wizard (and +4 Charisma), which doesn't count towards ECL.
14. Rolling a natural 1 on an attack roll always breaks your weapon, regardless of material or enchantment.
15. Any time you commit an evil act of any sort, an Epic-Level Paladin appears to arrest/kill you.
16. Paladins are allowed to kill anybody, regardless of alignment, and
eat them (no alignment/paladinhood sanctions), as long as the worship any other god (even if they worship another LG deity).
17. XP penalties if the players do not share the real-world political/ideological beliefs of the DM, and worse penalties the further the beliefs differ (justifying it as a roleplaying penalty for not acting like you agree with him).
Oddly enough, the most insane bad house rules are one of three things.
1. Power trip by a GM who tries to inflict his will on others, especially for a sense of superiority.
2. Blatant favoritism towards a certain race and/or class.
3. GM's who have no clue how the rules work, so they just make things up without realizing what it's going to do.
Now, after reading through this, I'm going to go try recover the sanity loss I just took from reading a litany of truly awful DM's.