Right now if you fall below -600 with a faction, its essentially impossible to ever recover. With some factions you can bot forever, bot others (corvus) its just over. I do think that is ... not smart ... Here is an easy fix: when you enter a guarded system, you /givemoney to a defbot. Each faction point costs you money, for example 1k credits per point. You can buy your way up to -600, not above that. Its too expensive for pirates, but it allows people to fix their standing.

using money to rectify a faction standing problem is a bad idea. In general money is a bad way to balance anything. As far as being able to recover from being blacklisted (falling below -600) i like it the way it is, with the exception that it is far too EASY to recover from a faction loss with one of the major nations. As you said, you can efectively bot forever to correct the problem.

A possible adjustment to your scheme would be to allow players to "bribe" their way into a station to dock once. the amount needed would go up on a curve, getting higher and higher the worse your reputation with that faction was. once docked you would be able to take missions for that faction to improve your reputation with them. Finish that mission, you have to pay another bribe to dock again. This way you still have to invest a large amount of time in repairing your reputation AND have the cash. If you reach -950 or worse, even this option should go away. If you can ALWAYS repair your reputation, than loss of reputation is not a very big concequence.

I like Spellcast's notion. I think it is acceptable to have some permanent consequences for a character. If you eventually decide to give up that life of crime it would be time to start a new character and try a different approach. It only takes a few days of play to get fairly decent equipment anyway.

If after life of crime you can't fix your reputation, thats ok. Right now a single accident is enough to get you from respected to hate.

Example: I am admired in Itani space. All I have to do to ban somebody from there is to damage my own ship to 1% and than to bump into him. Thats it. His char is unuseable, if he was a trader. He has to start all over. -1000 faction penalty for a single death is just insane.

the faction system itself needs work, no question, but repairing your reputation should be difficult. The game needs a few checks to look at situations like the one you describe. the game can tell the difference between weapon damage and collision damage, that just hasnt been applied to the faction system yet. That however is the problem with a reputation system. It has no way of judging "intent" only results.