regarding the powerful magic users, I say go with the latter. You might get the one guy (usually me) who tries to have alls da powerz, but a quick OOC reprimand from multiple players or a PM from the GM to keep it on the DL cuz he know he done F'ed up would work. A continual abuse of the power (probably more of a personality issue with the player than an IC or RP issue) could just result in asking him or her to leave. But i doubt we would get that far. So in short, the second one, but that's just my view.

To be honest, since I've been back to RP (been gone a long time), most of the issues I've found havent been with character devevlopment, but with RPers OOC.