I would say one of the big flaws of the merit system is related to merit distribution distribution. A lot of good posts go unmerited because the merit sources are not looking at posts in some forums (Bitcoin & Altcoin Discussion, Local boards etc.).
Another one would be that merit is not moderated. You can complain all you want noting is going to change.

A lot of posts are being merited between friends or people that agree with it (like you have said) rather than being high quality.

I remember seeing posts merited with high amounts of merit just because someone was calling the other a "butt hurt idiot"...  Wtf is that all about?