Hi,
the materia system is a cool way to get crafted items out of the game and keep crafters making items. The big problem with it, though, is that because Unique/Untradeable items cannot be melded, they are basically (with a few exceptions) worthless.
Some might point to the Ifrit Lancer, Marauder, and Archer weapons for an example of dropped items that are better than their crafted/materia equivalent. Unfortunately under the current system items like these eventually make the materia system useless.
Basically, with the materia system the way it is now, I see two possibilities in the future. Either A) Materia remains king outside of a few pieces of gear, giving a lot less incentive to do actual content when it's easier to just buy cheap crafted gear in town and gamble on forbidden materia or B) Future content drops actual good gear, killing off the materia system.
They're both bad choices, but if I had to choose between the two, I'd go with B since going and getting items with a group is a lot more interesting than playing the materia slot machine.
There is another way, though! If U/U gear is allowed to meld materia, both situations are avoided. The materia system stays useful since people will need new materia every time they upgrade their gear, and dropped gear is actually worth getting. Crafted gear can remain a cheap, quick option for leveling up and fresh 50s and it can still be converted into materia. If you want good gear, you'll need to go fight some bosses and clear some dungeons and buy/convert some materia.
Of course, a system to meld another person's gear through the bazaar will be needed, but that was going to be needed eventually anyway.
I really hope that the devs take this into consideration for 2.0.
Here's some good posts that come later in the thread