I think the real revelation of what Dan created is that most people are clueless in maths.
This is not a revelation and it is indeed a flaw. If you only want to appeal to math-oriented investors who think things through in that manner, then you are okay, but you won't appeal to investors who look at a price chart, see a declining trend and stop there.
Is this a fatal flaw? I don't know. In competitive markets small differences can lead to winner-take-all outcomes. A similar design that doesn't repulse less-math-oriented investors (and is neutral for math-oriented-investors) might do better. The higher cost of capital that results from narrowing the investor market is a disadvantage (likewise for cutting out medium-term investors as iamnotback has stated many times).
Most altcoins have developed a centralized pattern in terms of holdings over time, whether it is litecoin, dogecoin, etc. Small guys sell, big guys buy. It doesn't matter how these coins were launched, but the top wallets typically end up owning >50% of the currency.
That's because these platforms are all complete failures in terms of adoption and use (doge maybe wasn't for a while, but it is now). So it becomes an empty shell that exists only for speculation purposes. As such it is worth more to a large holders who can manipulate the price than to small holders who can not (at least as long as foolish small investors are willing to keep funneling in outside money and losing it by being manipulated).
In a platform that were actually used for something, there would be degree of wealth concentration, as you say exists in everything, but it wouldn't parallel most useless altcoins.
And moreover because the rewards are not attaining sticky adoption and there is very little speculation incentive due to the lockin, thus the market price is not moving up enough to offset the dilution of my share.
There is currently no dilution of your share at all. It is being paid by liquid steem holders. SP is actually deflationary (or at least it was when I looked the other day; not a big chance since then).
If you earn via the blogging features, then you will gain share relative to both liquid steem holders and other SP holders, but if you don't you will lose relative to other active SP holder but gain relative to liquid steem holders, balancing out.