I think maybe I didn't explain quite what I had in mind. I'll try again. Before that though, I've been playing with various versions of D&D, clones and OSR for a long time, and I know the rules as written are both fun and work well. I'm not trying to break anything, which hopefully you'll see as I lay it out. The real imbalance comes at high levels during short adventuring days. If a high level caster is not expecting to need access to any utility spells during a particular day, he can dump all his spell-slots into combat spells. But then again, high-level casters are pretty amazing anyway, so...
So what I'm proposing is that a caster (mage or cleric for ease of explanation) would not longer need to prepare a spell or pray for a spell specifically. Flavor-wise, both would need to go through their daily rituals of prayer and preparation, but it would not be for specific spells. I'll use Cleric first as that's my character at the moment.
Tar-Orag has 2 first-level spell slots available. He knows the following spells: Cure Light Wounds, Detect Evil, Detect Magic, Light, Protect from Evil, Purify Food/Drink, Remove Fear, and Resist Cold. Under rules as written he must pray for the use of which spells he wants for the day. So it might be one use of two different spells, or two uses of one spell. Under my proposal we throw that out. He can cast any of those spells he wishes as the need arises, but can only do so two times in any combination before he must rest as his spell slots would be exhausted after the second casting. So he must carefully consider which spell to use in a situation, because doing so will limit his ability to Cure Wounds if he uses up slots for things like Light or Detect Evil.
Let's look at a Mage character at third level. Has 2 first level slots and 1 second level slot (with the bonus spells rule in place, he could have more). His spell book might have Read Magic, Magic Missile, Shield, and Ventriloquism at first level and Knock at second level. So he could prepare two uses of one 1st level spell or one and one, and one use of his second level spell. Under my proposal, he would be able to cast any of his first level spells up to two times and only his second level spell once before his spell slots were exhausted.
This is essentially the Free-form option from the supplement.
Free Casting:
This system is simpler, and more powerful. Under this rule, a spellcaster may employ any spell he or she knows (i.e. has in his or her spellbook), so long as the caster has an available slot of the correct level. Free casting is sometimes called "cast at will."
With the Spell Demotion rule in place, it's possible that a third level Mage could cast three Magic Missiles in a row in a single battle... but that would be it for the day. No other utility magic or anything. Glass Canon.
So the argument is that it makes for very powerful mages and clerics, but usually under the conditions of a short adventuring day or at high levels.
The real reason this makes sense to me is that we otherwise see every cleric praying for two uses of Cure Light Wounds and every Mage preparing one or more Sleep or Magic Missiles and the other spells in the game rarely get used. Especially if the party has to camp and rest before any changes can be made. I think Free-Casting promotes wiser uses of magic and more creative uses and a variety of uses of spells.
(Also, this is along the lines of why I petitioned for Orisons/Cantrips... to get more "Magic" into the game.)