Yeah, the penalties are annoying.
Really, though, like many sub-systems it just seems like a lot of work. It's a lot of effort to custom-make a Legacy, and that's what you're almost invariably going to do: the ones in the book kinda suck, and if you're inclined to have such an item for your character it's probably going to be something central to the concept. The odds that something already in a book happens to mesh perfectly with your concept are quite low.
And, as I'm sure others have mentioned, the abilities are just too ... tepid. They have awesome names and the stuff sounds like it should be cool, but it too often ends up being a +2 to do this or that thing. Or, it's a decent ability but you have to be 16th level to get it, and by then it's pretty unimpressive (compared to say, 7th level spells). In short, it's not worth hanging your character concept on it, or it's something you could just do with magic items anyway. And, if that's the case, it's unclear what Weapons of Legacy bring to the table.
Sorry I can't be more positive, as a fan of Moorcock it's a system I really wanted to like.