While it may be difficult to properly run the Master Server, I think that removing the feature altogether is the wrong way to solve the problem, especially with the advent of a new release.
While it is true that there are possibilities for other Master Servers, it is not possible for everyone to host and properly advertise their Master Server. An alternative Master Server for clans or for RP is one matter, but for the primary source of online play there are several drawbacks, the most significant of which being that one is less likely to find a game on one-of-several networks than on an official network.
Arranging games exclusively by IP has drawbacks too, the most significant of which being that not everybody will be able to arrange an IP-based game, and this is ignoring the issues with trying to set up a game with an idle chatroom or on a forum. I've heard people say that it is just as easy to host an IP game by IRC, but there are far more users that frequent the boards than those that are active in the chatroom, and even more actually play SRB2 and casually check the website.
Furthermore, those complaining about roleplay not being allowed on the Master Server should probably note that the official gametypes are based around an open community and that the ideal RP would be based around a closed community... not the other way around.
Lastly, it has been discussed many times what should be done about the whole reporting issue. Before listing other potential solutions, I would like to mention that with SRB2ME coming, we will probably see many more legitimate games than we have in the past. One of the admins has stated that they believe the problem is lack of interest in SRB2 rather than the existence of bad servers. However, because there still may be the question as to how the Master Server will be best handled, it is sufficient as a temporary solution but only as a temporary solution.
My solution would be to give a handful of other users the ability to handle reports and sift through the ban logs, a job which is probably overwhelming for a single host, but likely less demanding from a moderating team. There will always be drama with regards to the master server, and not everybody will be dealt with, but I see at least some measure of control better than none at all.
An additional solution would be to make host-by-ip the default choice, but making the option of the master server publicized enough that it still remains a viable option. Additionally, by being an "official" master server, one would be less likely to confront problems such as not being able to find a server across a splintered pool of master servers (provided that enough members even bother hosting one to begin with).
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****TLDR users, start here****
I personally think that the Master Server should definitely come back in some form or another by the time SRB2ME comes out. I know some of the older SRB2 members like the idea of going back to exclusively ip-based methods, but I'm willing to bet that in those days only a small portion of the community even used multiplayer at all. Judging from what I've seen, multiplayer was hardly worth any further attention back then anyway. After making so many significant changes and improvements to the multiplayer system for SRB2ME, I consider it counterproductive and illogical to limit it so drastically. Perhaps some simply like the idea of multiplayer being a closed-community feature, but I don't think that should be an option with a major release pending. Multiplayer as a closed-community feature is the eventual result of multiplayer game whose userbase has died, probably as evidenced by the last year or so of Master Server behavior where the main surge in gameplay was the match beta which was still limited access.