I don't know why it can't be like many other dots and go "a more powerful effect is already active" meaning small ignites won't kill off the large ignites.

That's already how it works, but the problem comes when you get two crits right in a row. Say you get a Hot Streak proc, so you finish casting your current fireball, then Pyroblast! and they both crit. The game can't recognize that short of a time frame so it adds one of those spell crits to your ignite (don't remember which, the one that hits slightly before or after), and the other one is just a free bit of direct damage that isn't applied to the DoT.

Or perhaps you get a crit in the first two seconds of Ignite moving up to its 6 second duration as opposed to its 4 second duration (when you get another crit to stack on ignite, it increases the duration to 6), the new crit completely overwrites your previous ignite leaving you with a smaller ignite than you should have had.

The biggest problem comes from the fact that DoTs can crit and munch your big crits in either of the cases, but they're trying to fix that in the next patch by making it so DoT crits don't trigger ignite.

Well, that's kind of what the point of this new method is - it minimizes munching by having a "cap" that you can go towards, so any crits over the cap just extend the DoT, even if they munch.