I too believe it's the system that is broken. But I think there is quite an easy (conceptual) fix to the problem. Allow us to make 'friend' with a player from another realm.

Make it a new tab in the social window or something. Allow a generous max limit, and allow forming parties and joining the LFD queue with these cross realm friends. I believe this will eliminate nearly all the problems we're seeing with the LFD tool.

And I believe it is a critical problem for Blizzard. The LFD tool, coupled with intensifying the difficulty of heroic encounters, has meant a bunch of strangers with no rapport meeting up to do something incredibly hard, and the group devolving into chaos the moment they experience a set-back. This has contributed significantly to burn-out, and lack of social satisfaction from completing these challenges, since you're never going to see these people again anyway. What's the point of taking the effort to build a relationship?

Implementing cross-realm friend system, however, will change all this. The best tanks and best healers will befriend lots of DPS's, and there will be rewards for good behaviour and skill.

I can't think of any downsides to this, except for perhaps the technical challenge of implementing such a system. The way I see it, all the building blocks are there already, and if Blizzard had the will, I don't see why such a feature can't be introduced in 4.2.