Tobold issued a challenge to come up with a better trade skill system, so here is my attempt :P Similar to Tobold, I'll look at both the profitability and the crafting elements in a profession.Gnomersy correctly states that it is the AH price of ores that is so high that it makes crafting unprofitable. As I said that is a direct result of gathering requiring a lot more effort than crafting. You can simply solve that by making gathering easier (faster spawns for example) and the crafting more elaborate, requiring at least more attention, or even some skill.
Turning firstly to profit, I haven't check this but I'm pretty sure that if you compare the vendor prices for ores to crafted items, you will find that the loss is small because the vendor doesn't pay much for ores. It is only when you compare AH prices for the ore that you realize the huge loss you are taking when crafting useless low level items. I don't believe increasing the amount vendors pay for crafted items is the answer because that will only drive up the AH price for ore (because now I will be willing to pay more for ore because I'm going to get more back from the vendor).
The obvious answer to this to make the crafted items valuable so players are willing buy them. In my opinion, the biggest problem is not the quality of the item but the amount you have to make. There are a number of low level green items which aren't bad for their level, but if everyone makes 20 of them to level their profession, supply will far outstrip demand (don't forget there will be dropped items as well).
One solution (which I will develop later) would be to introduce more variety in crafted items ie rather than just + stam pants, be able to craft + stam/str/agi/int/etc gloves, boots etc. That way, rather than everyone making 20 of the same pants, people can make different armor pieces with different bonuses depending on the market. Even so, if you look at the supply of items (items made in the course of leveling a profession plus dropped items and compare it to the demand (ie no. of players with an item inferior to that on offer) supply will generally be greater than demand). With a wide range of quality craftable items there is a possibility (albeit small) for a (very) patient and observant player to make a profit.
On the other side of the equation you can increase the demand. By this I don't mean more players because players will take up professions thereby increasing the supply side. The way to increase demand for crafted items would be to either make mobs drop less, create more slots to put armor (different slots for left and right boots LOL) or take away the ability to repair thereby forcing people to replace their armor. All of these would have dramatic (and possibility undesirable) impact on game play and therefore not valid options. In any event, after about level 20, the market for equipment is actually quite small. I have leveled a warlock all the way to 70 without buying any equipment from the AH except getting all the < lvl 10 greens I could get my hands on at the start. Of course my warrior would not have been able to get away with using a VC quest reward staff at level 50 but my point is that between quest rewards and dungeon there really is not be a big need to constantly go to the AH to upgrade your gear. In conclusion, I believe that there is insufficient demand for intermediate items (of non-consumable nature) for leveling a profession to be profitable.
I believe the raw materials will always be more valuable (from a gold point of view) than crafted items because the raw material will give something a crafted item will not - skill points. When you consider higher level characters power leveling a profession driving up the prices of ore, intermediate crafted items will never be able to compete. As such the only efficient way to level a crafting profession to take two gathering professions and switch over when you have buckets of money at level 70. There is nothing you could have made at the lower levels that you could not have bought (except maybe for engineering).
I don't think there is anything fundamentally wrong making profession leveling a money sink. As Tobold has previously posted, in WoW money = time. So essentially, the cost of leveling a profession can be seen as an investment/commitment of time in the hope of getting some cool rewards at the end.
I have only played WoW so I have not had any personal experience in the mini-games that Tobold refers to. However, from reading his previous posts, the mini-games can come in two formats. Those which are essentially time sinks to make it harder to bot or go afk during the crafting process. I don't particularly like the sound of this because I play WoW to kill mobs not do puzzles. Secondly, there are those mini games that link your success (with an element of randomness) at the mini game with the quality of the item. In this case there is essentially a chance that you will make a higher quality item that will sell better (because there is less supply). To me it seems like a lazy way to try to make the profession interesting and profitable (by leaving it to chance). I may be wrong, but I guess the end result would be that most people end up getting good at the mini-games and most items that are produced are of a similar value/quality anyway. Again you have an excess supply.
As Tobold identified, the other purpose to take up a profession is to craft items. I think the recent changes by Blizzard have been a step in the right direction in that there are now items worth crafting relative to effort required to make the item and loot that is available via drops (Did anyone manage to make Nightfall, the epic axe that required exalted from thorium brotherhood and a ton of mats that were MC drops?). As a tailor, the BOP side of the house is good, but won't make me any money because I can't sell them (I can sell my specialist cloths - but that's hardly an exciting).
If you look at the loot tables there are maybe 5 BOE items in tailoring that are on par with dungeon drops/rep rewards etc. These are sure money makers. To get them you have to grind until one falls into your lap or have enough money to buy one off the AH when it pops up. I don't have a problem with this system per se because getting these high level recipes should involve some effort and investment. (Maybe an epic quest where you can chose one of the recipes at the end might work as well - particularly if there are a large number of legitimately good plans to choose from). What I would like to see is more of these BOE items. Using tailoring as an example, cloth wearers have 8 slots that can be equipped with cloth gear. Broadly speaking cloth armor can be categorized as spell damage, spell crit and healing (putting aside cloaks that can be used by all classes so +AP, +RAP, tanking and other stats would also be desirable). Surely, Blizzard can come up with at least another 10 craftable items that are on par with dungeon drops. That's without even considering resistances sets. Having more variety will allow more tailors to have their own niche which will give some meaning and purpose to the profession. Apply this across all professions there will be quite a few very valuable plans around for people to find/buy/sell/trade. With enough rarity and variety in recipes, crafters will be able to distinguish themselves from other crafters with their recipes. This is a concept that Tobold has previously touched upon. The down side is that the AH will be have lots of epics (they won't be cheap if Blizzard gets mat balance right). The hardcore may be unhappy because you could deck yourself out in full epics without setting foot in a single raid. But, if an epic cost 500g each, it will still cost you about 4000g to deck yourself out. Very few people would actually go down that route - and so what if they did? With the current level of epics, having full epics is hardly god mode. If the plans were rare enough, they could be spread across a number of different craftsmen so you would still have to track them down. It is unlikely they would all be just sitting on the AH because the items would be too valuable just to make have constantly up on the AH. Most people would buy a few to round out their characters while getting most from drops. I also believe raid sets should be better to encourage raiding.
Additional thought could also be put into the mats. For tailoring at least, you essentially have to grind elementals. I'm in favor of having to get mats that only drop off dungeon bosses, so long as there is a reasonable supply (chromatic breastplate anyone?).
If the end game is about improving your character by increments, you can make it a lot more interesting by offering many different but moderately difficult ways to improve your character. I believe crafting is something that can do that - I have a crap helm that I want upgrade. I could kill boss X a few times in the hope it drops or I could kill boss Y for the mats a crafted alternative, or I could grind a bit for the money to just buy said crafted alternative. In about /played 8 hours I have a better helm one way or other. The effort would be roughly equivalent to that required to gain a level. Alternatively, I could raid and get the tiered sets. Even raiders would find the increased range of crafted epics useful - a warrior can have a tier 4/5/6 tanking set and crafted DPS set. Those who like off the beaten path talent specs will be able to itemize in a similar off the beaten path manner. You would have so much more control over how to set up your character. There might even be a chance that our toons will actually look different from each other (ok I'm reaching here :P) The 1-70 leveling curve Blizzard created is an addictive thing of beauty. If those principles can be applied to endgame character gearing, the endgame will be just as addictive.
I don't think that reducing the loot drops to make crafting items more profitable would go down well with the general population. Lots of people prefer looting mobs to crafting. But Gnomersy has identified the problem correctly, crafters making low-level items in large quantities just to skill up. A better solution might be a way to "practice" crafting, SWG had that if I remember correctly. You get the same skill gain from a practice item than for a real item, but you need less materials, and you don't get a useable item for sale at the end. You could get a "grey" practice item for sale to vendor instead, to balance the cost.
On the number of craftable items, Gnomersy is right on the money. This is one of the improvements in the LotRO tradeskill system over the WoW tradeskill system. For example as tailor you craft complete armor sets of the same level, and not getting first a recipe for level 5 boots, then for level 6 gloves, then for level 8 leggings, and so on. Making a complete set of 6 items gives you a better chance to sell them than making the same item 6 times for the same skill gain.
One reason why I insist to make crafting more interactive is gold farmers and bots. If crafting is both profitable and non-interactive, you can easily automate it, and just have a bot crafting stuff 24/7 to make money. The exact system how to craft could take on many different forms, but it should be about as complicated as the combat system, so that it remains accessible. Making items is only part of the equation, giving players an alternative way to spend time in their favorite virtual world might be even more important. Lots of people want to be an adventurer, but that doesn't mean that nobody should be allowed to be a full-time blacksmith. Games like Ultima Online or Star Wars Galaxies had people voluntarily choosing to become full-time crafters, setting up a shop, building up a business, and that can be as exciting and fun as killing dragons. The important point is to make different activities equally viable, to get some interesting interaction. Crafters craft equipment for adventurers, and adventurers provide them with rare recipes and looted crafting components. A world that has different types of players is a lot more interesting than a world in which everybody does the same.
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