Watchlisting is one of the most used and easy intel assets at the moment. People just have to put you on watchlist and provide free and easy instant intel. There are alliances that have every single Super and Titan-pilot watchlisted and it makes it almost impossible nowadays to log in a SUPER or Titan pilot without the enemy instantly knowing it. This makes boring game play and prevents covert CAPITAL operations. This will also generate big-bloc power projection since nobody wants to fly his Super or Titan with smaller Alliances because they know that big blocs like Pandemic Legion have them watchlisted and will hunt them down as soon as they log in. So there is only one choice left and that is to join a big bloc or loose your Super to them because they have you watchlisted.
I find this to be a reasonable and interesting argument. I don't know much about the importance of super capitals or titans in sov-null space, but it seems to me that the watch system does provide a large amount of intel for free.
Personally, I don't use watchlists very often. If I need to interact with someone in my corp, I can add them to my watchlist when I see them online. Otherwise, it tends to collect dust. Some people use watchlists for tracking war targets or knowing when one of them is online. I don't bother with this; I'm a wormhole dweller, the risk of non-consensual PvP is natural to me.
The OP went on to suggest that a new feature be added where you personally need to approve someone adding you to their watchlist. I'd say a nicer solution might be that someone with positive, non-neutral standings should be able to watch list you. This would cover your friends, corp mates, anyone you, your corp, or alliance deems decent enough to turn blue. I'd almost suggest extending this to war decs (i.e., once you war dec an alliance or corp, both sides can watchlist each other). The flip side to this is that maybe the power blocs will perma-dec corporations with super or titan pilots in them so they can continue to watchlist them.
I'm in favour of some method of reducing the usefulness of watchlists, since they are free. Another option would be an ability to bribe locator agents so that they sometimes give the wrong location to anyone inquiring about your location. Perhaps incorporate standings to this, and a sliding scale of probability that interacts with the amount you bribe them with, plus your standings. Maybe older pilots also have a multiplier that means they need to pay more to achieve the same probability as a newer player paying the same amount, with the same standings. Of course, CCP could keep this probability hidden and bounded strictly less than one so that even if you pay billions of ISK, there's a chance that the locator agent will still tell them your true location.
Definitely an interesting topic. If you have ideas, feel free to chime in!