If the big issue preventing fair allocation of RPP is not having enough staff/enough staff time to observe players enough, then why not allocate some of that observation onto the players themselves?
The short answer is that players can't be trusted with it.
Even if you manage to prevent abuse by OOC buddies (which would honestly take about as much effort as the act of handling RPP staff-side would, if not more), most players simply aren't qualified to make decisions like that. For one thing, we see very little of what really goes on when playing mortal PCs and constantly misinterpret things. Also, people are overwhelmingly biased against characters of evil alignment, so to speak, and you will receive a lot of thinly-veiled OOC hostility by simply playing a villain. This will strongly affect people's propensity to appreciate and reward anyone who plays an unpopular character.
Also, the commendation patterns would be heavily influenced by playtimes, clan/sphere populations, OOC popularity and so on -- in fact, it'd be likely to turn the game into a horrible popularity contest where people go out of their way to not only become liked outside of the game but also to inform everyone of the identities of their PCs. The whole thing would open so many cans of worms and be so abusable, so potentially damaging to the community, and still probably wouldn't bring us any closer (probably the opposite) to the goal of more fair and appropriate awarding of RPP.
It simply affects the game and the way people play it far too much to work on an RPI, and the goal should always be to make people worry less about RPP. Vesting players with the responsibility of awarding RPP would do the exact opposite. ARPI and PRPI had a 'nominate' feature that allowed players to merely inform staff when they thought someone deserved RPP, and that feature showed all the aforementioned signs and pattern despite doing nothing tangible. I sincerely hope never to see a system that allows players to actually grant rewards to other players, on any RPI MUD present or future.
For the most part, I find that the supposed faults of the traditional RPP system are quite overblown. Players who really deserve to be rewarded almost always are; usually the only problem is with the first point because it can be hard to notice when someone is at that stage if they're not playing a notable PC and the player is not yet a familiar name to admins. Any higher and it's typically quite obvious who does and doesn't deserve points, and most of the complaints come from players who don't but think they do.