If everyone knows the exchange has a fractional reserve it's not a bad thing.
If they're doing it without saying so that's another issue.
We've talked about doing something along those lines (the wallets).
I don't write the code so I'm not sure how difficult it would be to have individual wallets.
I would be interested in any solutions people can come up with though.
-Jered
The system is useful because it provides transparency. The question of whether fractional reserves are desirable is not relevant.
Transparency is useful with a fractional reserve too.
E.g.
Suppose that the exchange promises to hold a minimum of 30% as a BTC reserve against all its bitcoin liabilities. Each customer is assigned a unique block explorer address that holds exactly 30% of their account balance.
If this account is not at exactly 30% of the account balance, then the customer will know that either:
a) the exchange has been hacked, or
b) the exchange is not holding a 30% BTC reserve.
Again, customers should be able to audit exchanges using block explorer. That is what the technology is there for.