Well, the very early FP only improves the OCN by 10%, not double if you build your FP right next to your capital. I thought it would be double, also, but was informed by Alexman that it isn't.
Like has been said before, what is an is not an exploit depends on one's own opinions (or a group's opinions if playing competitively). The AI certainly would never do this. Is it game-breaking or very unbalancing? That is debatable. Certainly not as unbalancing as many other things, that is for sure. Some people have become really good at this, and if you can get your palace jumping ready at around 1000 B.C., or shortly after, the game is pretty much already over. But, with luck you could do better by getting a leader to rush the FP at or before 1000 B.C. So palace jumping is a more safe strategy than hoping you get a leader.
If they really wanted to get rid of palace jumping, then they should make it so that when you do disband your capital, the capital moves to the next oldest city (the second city you founded in the game). The second city you founded usually isn't too drastically far from your capital, so there wouldn't be a whole lot of improvement in jumping the capital, because then you'd still have the palace and FP right next to each other.
But then I can picture players throwing their first settler built out of the capital to the other side of the map.....