Ah, it is built into the protocol/reference client? I had assumed it was something people had implemented on-top - but admit I have not looked into that in enough detail.
To me, it feels like the network would be more secure if every node was mining for themselves rather than forming pools - although I guess we would have less hashing power because the reward would be extremely rare for each node.
There is pros and cons, and is discussed many times already.
As you noted, with the current model, people could still maintain a small scale mining farm in their garage. If pooled mining is forbidden, mining could be even more centralized.