Well, an IOU of for example 1 BTC will likely be worth a value between 0 BTC (issuer = defaulted/fraudster...) and 1 BTC (100% trustworthy issuer). Values above that are of course possible but unlikely.
A common example of an IOU worth something higher than the principle is a CD or Bond.
Your argument is now that it is hard to determine a proper amount to value this 1 BTC IOU. This is true however for any IOU and has been this way for millennia.
The difference is that for millennia the lender and borrower had a direct relationship and the lender could make an accurate determination of the risks he takes on when he lends by getting as much information as he can from the borrower. He can also determine the interest that would make it worth the trouble.
In ripple, this relationship is severed, making accurate determination impossible, rather than difficult.
Two consequences of this jump out at me;
1.) Trust lines will be determined by how much the lender is willing to lose, no questions asked, without notification, and without remuneration.
2.) People can and will abuse this system, and all of the most trusting/gullible will suffer the most from it.
As a direct result of this, trust lines -if they exist at all- will a combination of extraordinarily short and in tiny amounts.
It is my belief that 1 BTC (on the blockchain, as an asset) has exactly 0 value ... BTC is not based on their inherent value but rather upon their usefulness as money and store of value.
Everything is valued based upon it's usefulness, not its "inherent value". When Austrian Economists talk about intrinsic value, they are only referring to the intrinsic properties of the item in question that has value, subjectively, to certain people.
Your argument turned around would be the following: The inherent flaw of digital assets like XRP or BTC is that they cannot be priced by the owner, as they are worthless by themselves...
No, but a different phrasing of my argument would be;
IOU's cannot retain value as they are passed along a Ripple Web of Trust because the terms of the loan, which determines the value of the loan, is vaporized by the first Liquidity Provider.
The solution to both your arguments about rating trust in IOUs and the opposite argument about uncertain pricing of assets is also known for millennia: an open market where people come up with prices and hopefully also match these from time to time based on both their needs/beliefs and other market participants.
That doesn't work because the mechanism by which lenders can make these determinations in the market do not exist in Ripple over Liquidity Providers.