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I don't know if it's a design flaw to use 0-conf inputs to pay out winners with. It would certainly be preferable to use more confirmed inputs if possible, but maybe they do, and this problem we're currently seeing only happens when there aren't enough confirmed inputs available.
No - it's a design flaw to be paying transactions with transactions that will never commit ... if they are double spends.
As I said:
That's just a design flaw your talking about there which I doubt is part of SD ...