OK, this is a curly one, massively, hugely curly and is often the demise of many guilds. My guild is currently in the middle of this discussion and the results are very interesting. I will not be focusing on the details of each system, you can look that up yourself. I will be looking at how Item distribution can affect your guild culture and vice versa.
Master Looter: This assigns one person to be in charge of allocating all the boss drops out to "worthy" members of the group. And this is where things get interesting.
Once you get into the realms of 10man+ (which, let's face it, most of the WoW community is now doing) you start having the questions of how to hand out this loot in a fair and equitable way. Often this means "with the least QQing" but sometimes it isn't.
There are plenty of differing systems out there. Anything from "EQDKP" or "MLDKP" to "Ni Karma" or "Zero Sum" and Rolling systems. I am not going to go into them all here, as google is your friend. Just throw the above keywords into google and read up on the differing types of DKP. I am going to focus on the strengths and weaknesses on a high level of each major system.
DKP - Pros
DKP creates a currency that you can reward for guild members for effort. Basically, you can use this currency as an incentive for people to turn up, punish them for noobish behaviour ("50 DKP MINUS!") or reward a hard nights raiding or a one shot. This encourages people to put on their game face, if that it what motivates them. DKP great for casual guilds pushing progression content as it creates a clear list of who is doing what and what is fair. It encourages people to come to wipefests in the name of having a chance at getting gear, because there are tangible rewards to turning up to a wipe night. I have found that DKP is good for newer guilds, or guild building a solid team of regular raiders. It is great for guilds with still a reasonably high turnover of members, as it is "known" to be "fair". The other thing that makes it great for newer guilds is that it removes personal intervention (on the whole) from the decision making process. Officers do not need to make too many decisions or overrides on item distribution. This can, when used properly, create a great feeling of trust as when you DO override a DKP decision it can be for all the right reasons, thus starting to generate a guild feeling of trust and maturity.
DKP is good for guilds with younger members, for whom it is all about the shinies. They can plan and scheme to their hearts content and still help the guild progress.
DKP hoarding is a pro if you have high turnover, as it keeps gear within the guild.
DKP - Cons DKP has a massive overhead for out of game maintenance. It requires all gear be costed, all items minutely tracked, time minutely tracked (to award DKP) attempts on bosses "costed", and allocations for DKP for people on standby. Getting all this to balance in a sensible way that does not over inflate the system is NOT EASY and very difficult to get right. It requires people to watch their DKP, watch offspec gear handouts, and micromanage their own gear progression.
It encourages the saving/hoarding of DKP for that best in slot item. The saving for gear gimps the guild not the person. The more gear that goes out to people, the more chance they have to experiment with gear try new things, rotations etc that they wouldn't normally have to do - because they are too busy trying to save for that item that drops off the last boss, and stop person b from having more DKP than them and and and... yeah
Basically, DKP is a stateful system which requires a lot of micromanagement.
Often, newer members find it very hard to break into an established DKP system with massive inflation. You end up with people either not caring and spending on everything or saving for that one item.
DKP overhead is probably unmanageable for 10man guilds - the advantages of the system are outweighed by the overhead of running it. Also, 10man guilds tend to be tighter and fall much more under the considerations below for rolling.
Rolling - Pro
Recently, my guild has tried a simple rolling system for gear distribution in Naxx. Basically it goes like this: attendance is tracked using ctrt (for LC decisions), /roll 101 for loot council intervention (often for best in slot items or something someone really wants), /roll for a standard upgrade and /roll 99 for "meh" upgrades or sidegrades or offspec.
We have found this to be faster and simpler to run than DKP (many less mods required and calculations and scheming by people) and the ML is much relieved by the lack of stress. This system also encourages people to look at other guild members and see what they have and see if the gear improves the raid as they are not counting their pennies on offspecs and saving for gear. We have had much less DEing, and more people trying new things. For example, our boomkin would never had been able to put together a haste set as well as a crit set with DKP.
Rolling is very good for 10 man guilds where it is pretty unlikely that more than 2 people will be vying for an item at the same time on the whole.
Rolling - Cons
This system may be too simplistic a model for a lot of people. It requires a lot more ownership by guild members and a lot more trust within your guild. This is probably only good for a guild who has been raiding for some time together and trust the officers decisions, and trust their fellow guildmate to not get snippy about gear. Loot council has it's own issues, simply by the fact that it is not an automated system making the decisions (like in DKP) but this is a strength and a weakness. This can be riddled by bad luck on rolling, and people can get upset. Officers CAN intervene, and it DOES rely on people saying, hey I got 3 pieces tonight, I will pass so someone else can have some shinies.
Basically, it's horses for courses. Both types of loot distribution have their own systems of management and pros and cons. What you need to really identify is what kind of guild are you or, even, what kind of guild do you want to be. Setting a precedent by using a item distribution system can encourage and discourage certain types of people to your guild. You can use this to your advantage. It is your guild, set the tone early and set it firmly and don't be afraid to say - sorry, you just don't fit with us.
Generally these are my tips for what I am looking for in a system
b) easy to run and maintain
c) gets gear where it should go
d) doesn't focus on "loot" as a reward
Yes, this post is confusing and long but this is a MASSIVE topic, and this is just a very high level view of 2 major systems used.