So the magic-uses IS with the group and will therefore be an issue. You can't always move up and there will often not be a way to move back and still see the enemy.
"And will therefore be an issue" in what regard? Not in combat; the times when you can't move up tend to be few and far between, and even then you can still move around enough so that the defiler will still be able to cast spells without friendlies being in the defiling radius. There usually aren't that many cramped hallways in Dark Sun campaigns.
There's a reason magic-users died a LOT in 1e/2e. Those tactics don't keep them alive. The safest place for the magic-user was in the middle of the group so that creatures couldn't get to the magic-user easily, and they still died pretty often. squishy and easy to hit while having low hit points makes it hard to stay alive.
The idea of keeping the wizard in the center of a densely-packed formation where the allied PCs kept the enemies from being able to reach the enemy was one of those things which worked better in theory than in practice, since it kept the group vulnerable to concentrated ranged attacks, AoE spells, etc. In practice, it was much more likely that the "tanks" would move in, and the ranged characters would fall back. Hence, the defiler's initiative penalty was more likely to serve as a mild debuff on enemies that got past the tank and moved in, which is why they were incentivized to play (along with their faster level progression).
It doesn't have a penalty. The group moved up to engage, right? If the enemy has a penalty, so does the party. Then the enemy moves up and kills the magic-user. Not to mention after the enemy moves up into his face, the magic-user has to actually win initiative in the first place in order to give the enemy a penalty and if he loses with creatures right up on him..........................dead magic-user. And on top of that, the enemy could still roll well and the magic-user poorly, also resulting in dead magic-user.
Relying on that penalty to stay alive isn't smart.
"Relying on that penalty to stay alive" is a mischaracterization on your part; no one ever put it forward that it was a life-saving technique. It's a mild debuff that can be thrown out for free when casting a spell (and that's not taking into account the option to use defiling when preparing spells, rather than casting them, which granted a different bonus; see above). A lot of the time it won't make a difference, but at least you have it available for the few times when it might.
While the defiling initiative penalty has the potential to inflict friendly-fire, that's the same as spells like
fireball and
lightning bolt; you still have to use it smartly within the scope of the tactical situation in which you find yourself. Likewise, while you do already need to have won initiative to bring it into play, that can still be a decisive factor depending on how soon after you an enemy would go. If you act on a count of 6, and the enemy acts on a count of 5, a -3 penalty can make all the difference if your nearest ally acts on a count of 3. Ideally, you wouldn't
have to do that, because an enemy would never get that close to you, but quite often things weren't ideal.
The thing to remember is that preservers didn't have this option at all. Not only were they likely to be lower level than a defiler at the same XP, but they couldn't inflict an initiative penalty if things got bad and an enemy got close. In the example above, the preserver better hope whatever spell they cast at count 6 in the initiative is enough to finish off the enemy acting at count 5, because their ally at count 3 won't get to go until after the enemy does otherwise.
Being able to inflict a mild debuff for free when casting a spell is an incentive to play that character class; that remains true even if you have to be smart about when you make use of it.
