Great discussion. As everyone knows, I'm a fan of the draft as it is, but philosophically I'm with the free marketeers. In an ideal world, the college prospects would enter the free agency pool (or a separate round of free agency for college prospects) and teams bid on those prospects that they want. THAT is the fairer system for everybody, teams and prospects alike.
The problem with the current system is that it rewards failure and, doesn't necessarily mitigate that failure. Year on year we see the same teams picking at the top of the draft and the same teams picking at the bottom (roughly). The draft isn't doing that much to mitigate against that mediocrity. At the very least, improving yourself via the draft requires a succession of high draft picks, so in fact, it's repeated mediocrity that is getting rewarded.