Yes, it's not particularly good. I think the reason they went with their current scheme is to enable coop, and for split parties, which I remember they used on the first map for DOS ( didn't get further than that before getting bored ).
The "traditional" party movement scheme doesn't cater for multiple parties - if you have not individually selected a "partial" party, then any movement command gets applied to the whole party in whatever it's current formation is. So this is no good either.
The idea of associating characters with chains is OK, if a bit clunky, as it gives mechanism for constructing sub-parties that you can move independently. If those sub-parties can each have a formation, and the formation is fixed ( i.e. not reorganising around the last selected character ), many of the problems would go away. Not having an AI dumb enough to stand in/traverse damaging surfaces would also help.
The silliest situation I have experienced is having Gale die in combat while next to my PC. Post-combat, the rest of the party dutifully formed up behind me, and by the time Gale(shade) was through his cut-scene diatribe, his corpse had necrotized the rest of the party. This happened twice, so on subsequent plays Gale was ignored or immediately killed when he tried to wheedle his way into the party.