The concept of loot is essential in some genres but entirely superfluous if given more than a moment's thought.    Games like Diablo (and their ilk) use the idea of increasingly powerful loot as the main draw in the gameplay --  their carrot-on-a-stick motivator that tickles your psychological funny bone to compel you to keep playing.   Clicking on the next mob might yield you an upgrade that makes the mob after that one die even faster, which may yield an upgrade that...in perpetuity.    I cannot besmirch a game who utilizes loot in such a way, since it becomes the defining point of its mechanics.   Diablo, Torchlight, Too Human....all of these games ask you to concede the concept of loot as a component of the mechanics, not of the world-building or storytelling or even the role-playing aspect of the game.   

But there's no excuse for other games.    Earlier today I found myself deep inside a mine, searching for a boss (in an MMO that won't be named), and busy freeing slaves with the keys that dropped from mobs en route.    Then I ran out of bag space.    Then I noticed that I had in my inventory exactly 23 items of no value except as vendor trash.    I did what anyone would do at that point:  I destroyed the trash rather than leave the mine and spend time returning.  

Now that I'm suitably pissed about the time I spent managing my inventory, I began to notice some details; namely, the kind, value and usability of the loot I was picking up was not in any way shape or form influenced, justified or informed by the mobs I received them from.    What do I mean?    Here's what I picked up while killing deer in the area:

1. Copper coins
2. Fur scraps
3. Meat scraps
4. Broken hoofs
5. Leather pants
6. The Quest Item I Was Searching For
7. Weapons

This makes no sense, and leaves me with more questions:

1. Why is a deer carrying pants?
2. Why am I picking up pants that a deer has on them (wouldn't they be covered in ticks, or deer shit)?
3. If my goal is to get meat from the deer, and every deer is made of meat, why does 1 in 3 kills yield no deer meat?
4. Why would I pick up broken hoofs to sell to a general goods vendor?
5. What does a deer need with copper coins?

Beyond this, the concept of loot making contextual sense falls apart even more.   Looking at MMOs in particular: 

• Bosses carry weapons and armor they themselves aren't using/wearing/capable of carrying.   
• Bosses do not drop the weapons/armor they actually use in the fight.
• If my job is to collect the heads of bandits, and every bandit has a head, why is there even a drop rate for bandit heads?

Other RPGs have their own issues with inventory management and loot systems, but developers should take note of how Mass Effect 2 worked.   But if you aren't going to go whole hog and abandon loot management, then please choose the right form of abstraction.

Here are some ideas:

1. I have to suspend an incredible amount of disbelief that a deer is carrying pants, let alone a magical weapon.  It takes the same suspension, and far less aggravation, to accept that vendor trash is converted to gold when I pick it up automatically.  
2. Don't do dumb things like have each member of a 5 man loot the head of the boss.    If multiple people must loot the same corpse, have us take fingers, and give one person a thumb so they feel special.
3. My character is carry somewhere over 2000 pounds of loot with him, if everything had real weight.   He's also carrying the cubic volume of my garage in his backpack.   Please don't think that by adding an item limit it makes it more realistic, especially if you don't give me a full set of bags to carry it all in right from the get go.    Good examples:  LOTRO, Dragon Age.  Bad example:  WoW. 
   
4. Trash mobs should not carry magical items that make your current loot look crappy.   Remember that cool sword you got from killing that boss who lived in that dungeon and was about to take over the world?   It sucks compared to what the bear had stuck in his fur in the intro zone of the next expansion.  

Bottom line, if your game is about loot, great.  If it's not, get rid of it, streamline it, or make better choices that don't annoy people.