A good point indeed. One that I share, in fact. A dominant party could be trouble, but ironically a super-dominant party (say, one with >2/3 of the citizens as members) would become obsolete. Think about that for a bit and you'll see that I'm right.
So let's take a look at these concerns and see if there's a way to alleviate some (or all) of them.
Political Parties exclude people.
On the contrary, political parties can act as a tool for
inclusion. This block votiing that the esteemed Duke fears already takes place in many elections. Paalikles has made reference to it and just about everyone who has taken part in more than a few elections must have witnessed it to some degree. The favorites already exist. The discouragement already estists. Perhaps this is the true reason we are having such difficulty retaining members....
A political party may provide those discouraged individuals with a sense of inclusion. They can see that there are others out there that share their opinions on issues and that they are not nearly as alone as they may have thought. Belonging to the minority is still belonging.
The party system may actually provide those minority groups with an instrument to effect change which has been lacking in past games. Alliances could be made with other minority groups. Propoganda could be used to influence the next elections. Working as a group empowers those individuals in the minority to effect change.
The political parties would be based solely on who is friends with whom and not on game issues.
This is simply naive and implies the worst behavior from our citizenry. Not to mention the fact that some simple rules could prevent this from occuring.
No Political Party may operate without a charter granted by the Judiciary. Forcing the party to petition the high court for a charter would grant the judiciary sufficient authority to prevent the creation of parties that are not founded on "ideals or game concerns". To ensure they are founded for game issues and not just social groupings, we could require Mission Statements in these petitions.
FortyJ's Party for friends of FortyJ only would not only be one of the smallest parties in the game, it would not be based on game play issues and thus not a valid mission statement to receive a charter.
Green Party for individuals dedicated to the preservation of natural resources at the expense of industry, on the other hand, would probably qualify for a charter.
Political Parties are not immune to Public Investigation. This would be groundbreaking legislation because for the first time (as far as I recall), organizations as well as individuals can be the subject of PIs. Now, any Party that is found to be acting improperly or to be in violation of their charter could risk losing their charter.
Of course, other rules may be required, but those two should be at the core. In a sense, give the Judiciary the authority to regulate the political party system, and we can likely avoid the pitfalls that frighten the bejeezus out of some of us.