[quote=Cadvin]
Honestly, I would just make it clear that you don't expect magic to be too powerful. Don't accept anyone that you think is taking it too far, and if someone does something out of line give them a talking to and make them retcon their post. It's a much more surefire solution than imposing restrictions on the magic system itself, because it's almost always easier to find a loophole than to plug them.
[/quote]

On the few times I've had magic play a part in an rp, this is pretty much what I've done. "Use common sense." If there's an issue with me feeling that the magic used is overpowered would be dealt with in a pm to the person. 

I've had 2 games I've gm'd that dealt with magic. 

One was meant to be an over the top exploration of a fantasy world. You played regular people thrown into a fantasy setting, essentially waking up to find that all of the sudden you're in a "video game" fantasy world. Firebomb spells that could wipe out a village? Sure, why not. It was meant to be (darkly) funny more than anything else. 

The other game was more on the serious side of things. Magic was rare and not well understood. Anyone born with magic only had 1 talent (as I called it), 1 specific thing they could do, and it could be just about anything barring time-space manipulation (I just find that doesn't work well in rp'ing). With each magic ability though, came an innate repercussion to the user. One char, for example, was able to alter memories of another person. However, each time she did so, she lost a memory of her own. Sometimes big important stuff, other times something insignificant. That was the balance.