The grouping system looks ok to me.
For players around the same level, that's equivalent to them getting xp divvied up somewhat equally.
I would guess then you'd have to take a look at players of a differing level.
Even then, I don't see any major flaws in it, except perhaps you'd have to take on mobs of a level around the highest player in the group's level.
It would prevent power levelling, because of the percentage of xp gained, but ... would it discourage players to group to take out 'bosses' of a zone?
Eg, maybe players group to take out Voltron.
You get a few lowbie priests, and one buff high level tanker. The priests of course cast 'heal' on the tanker, and the tanker takes a long while to kill him. The tanker may get good xp, but the priests don't, compared to the effort they make.