Well, I do not find, and have never found, the encumbrance rule to bring any 'flavor' to D&D. It was a limiting nerf designed to steer players in pnp - if used at all. I always referred it to it as the 'minutiae police' focusing on rules rather than actually enjoying a story. Flavor is music, graphics and the story. "Encumbrance" is nostalgia of a bygone way the game was written and can be cut as part of an MMO.
As for 'realism' - a pretend world of magic used to escape 20+ century Earth is a different 'reality' than Earth, so let's stop trying to take our reality and impose it on DDO. I, for one, am happy to suspend my belief of our real world physics while I am playing a game. You are already suspending your belief in dozens of different ways in this game as to how players act and work, why encumbrance somehow is the one 'reality' we have to hang onto - I do not understand.
With regard to strength affecting spells, I do not find this persuasive. The spells should not be taking into account, in an MMO, everything in your backpack. In a pnp game, you would not be carrying all of the weapons, armor, collectables, widgets etc anyway, the way you do here. The spells will STILL affect you - based on your stat sheet. It just will not take all the intrinsic extras an MMO has that pnp doesn't. Do you really want a 1 page backpack and everyone being *required* to go to the bank and swap out optimal equipment for their next quest? No.
So, upon further review of the subsequent commentary to my initial post, I keep my position that encumbrance is of no use in this DDO mmo as currently structured and I would not be sorry to see it go in the least.