Thanks for the feedback. My responses are below.
1) There are over 1500 magic weapons and over 2300 implements in the game system already. That means that there are approximately 50 / 75 of each level. Plenty to choose from.
r1 has countered this one. More items are going to introduced, just as more powers and feats are going to be. Of course, it is in WotC's best interest to do so, but may/may not be in ours.
2) One of the design strengths of the game system is that some classes gets some advantages, others get others. When we allow players to design items (or feats or powers) similar to those available for another class, then those boundaries start breaking down. For example, just because Unforgettable Cudgel is in the game system for divine PCs doesn't mean that an extremely similar magic item should exist in the game system for arcane PCs.
I actually checked before. There are several mace->rod items (or rod->mace items) already. Most are paragon or higher except for the ones for divine characters; the ones not at heroic are mostly arcane (warlock & artificer specifically).
3) With regard to this specific item, it is level 8. A higher level 9 Battle Staff only gets its 19-20 critical on a weapon hit, not an implement hit. Yes, the staff has the minor Daily power, but getting an improved critical chance on many melee implement attacks is stronger than that minor once per day ability. So, it starts becoming difficult to balance such an item with items that are already in the game system.
I am using WotC's own items here as the basis for the creation which (other than discussions like this or on the CharOp board) are our balance indicators.
As a comparison: There are 0 cleric, 7 avenger, and 1 paladin power that benefit from the unforgiving cudgel (there are 2 invoker powers that would, except they don't get holy symbols). There is only 1 artificer power that benefits, 1 warlock, and 0 wizard powers. Swordmages can benefit 3 of their powers and sorcerer's 9 if they take a feat. Thus, artificers and warlocks are not actually gaining all that much from the critical part, though the 1 artificer power at-will.
One could address the perceived crit balance issue by (1) limiting it to artificers only or (2) removing the crit. I'm not opposed to 2, but then it becomes a less powerful "pact-dagger" like weapon and thus should be at a lower level.
4) This item can be combined with a feat like Sorcerous Blade Channeling and suddenly, many attacks by a Hybrid or Multiclass or Arcane Implement Proficiency Sorcerer are not only a 19-20 critical, but it is using the D8 of a Mace instead of a D4 of a Dagger. Opening the door to 19-20 criticals is problematic in the game system. WotC appears to be going out of their way to limit this with recent updates, not extend it.
It doesn't work with Blade Channeling. You are correct that it does work via hybridization, something I did not foresee. This makes the arguments for either of my revision's stronger which I am comfortable with. This is why we have these discussion here.
5) The game designers currently allow some weapon / implement combinations and do not allow others. With regular players adding to the list, it pushes the game into directions that the game designers have not taken into consideration.
And the designer add new ones all the time (the recent addition of crossbows to artificers via a feat). If we are never to add anything, then the proposal system becomes questionable (see below).
6) Once one player designs an item for the game system, then every player should have that option. And then it becomes "Well, stonegod's item was approved and mine wasn't. I don't see where his was balanced and mine was not.". This just opens up a big old can of worms that we shouldn't open. There are a ton of options available for every single character, we shouldn't open up the door for player designed options as well.
Then that raises the question of "what is the proposal system for?" If we accept (which I do not, but I will for the sake of argument) that adding to the system will inherently unbalance it, than the proposal system is moot other than for removing things (which also could also be argued against for balance reasons) or changing LEB's charter. Are you suggesting that we remove the 2/3rds of the proposal system entirely?
The proposal system has been put into place to allow and encourage these sorts of customizations. It is also in place to make sure that any such customization does not overpower said characters (as there are methods to correct for this as well via the proposal system). I understand the school of thought that suggests "RAW only"; I subscribe to it at large but not 100% as that leaves less room for creativity in designing powers/items/feats for individual campaigns.
The main thing to keep in mind when the proposal system is being used this way (as it was intended) is to make sure that the proposed item does not grant something that makes the Living system as a whole unbalanced as you pointed out. I want to repeat that where are methods for correcting such imbalanced: Its the proposal system itself. Anyone can propose an option be corrected if it is too powerful.
In any case, I cannot vote on this proposal, of course. If the judges vote this down, they vote it down. If they vote to accept, then anyone (even KD) can propose to remove it later if it appears too powerful.