Get rid of diminishing returns: They prevent the players from getting rewarded for setting their groups up around particular cooldowns like virus, which can help deal with hard hitting bosses. Right now invisible timers are more of a boss than the bosses we are fighting. Twintania phase 2 is really just a big hit that we need to prep for, but because we have to know within ten seconds when the next one is going off, it is hard to apply virus at the right time without a stop watch or similar addon.
Change the materia system so that the materia slots are separate from equipment, and allow the player to equip more materia based on his current item level. More importantly, crafters shouldn't have anything to do with it. We should be able to drop an ice materia into a slot to give us ice resistance in preparation for a fight against Shiva or fire resistance if we are prepping for a fight against ifrit.
By keeping a diminishing returns system across the board, you are removing that as a possible boss encounter mechanic and it also hurts the aesthetic of verisimilitude that is important to an RPG fantasy setting. (for those unfamiliar with the term, it means the ability of the setting to suspend disbelief and for the player to think of it in terms of an actual world as opposed to just a backdrop for game mechanics). It also purposefully removes strategies from the game instead of rewarding players for making use of certain combinations of abilities.
For instance, if a group decides they want to bring four casters along so they can chain cast virus on Twintania, they should be rewarded for it. It's only a 10% debuff to strength and dex for 10 seconds, except for the summoner and scholar. It's certainly not game breaking like using the zombie status effect on Yu Yevon at the end of FFX where he kills himself with his own regeneration.
Edit: Yes, I'm aware that they need to make changes for PvP, but they should have known better than to insert arena style PvP into a game built and balanced around PvE. We have over 10 years of World of Warcraft development that attests to the difficulty and impossibliity of balancing the two systems. Plus, why they would make player characters fight with one another when the story is about unifying people together just boggles my mind. Wouldn't it have been better to implement something like a fantasy sports game for the PvP than blood sports? I apologize for the momentary edit rant :P