When I look back at how loot dropped in Wrath, there are two major items that I disliked.
1. I never really understood why normal loot needed to be strictly better than the heroic loot of the previous tier. The same, or even slightly worse, seemed more logical to me. But loot being strictly better in the new instance meant that the previous instance was dropped instantly, and added to gear inflation concerns.
2. I really did not like having multiple recolors of the tier sets. It really devalued the uniqueness and recognizability of the tier sets. Of the 25-ish different tier sets released this expansion, I doubt that I can even name a handful on sight. Which is far different than the previous two tiers.
So here's my proposal for how loot should be handled in Cataclysm:
Normal C1 raids would drop C1 gear of all slots, including the tier set. Heroic C1 raids would drop the normal C1 gear plus one C2 ring/trinket/necklace/cloak (maybe relics and throwing weapons too). Basically, you only get access to one tier of cloth/leather/mail/plate at a time.
When the C2 raids come out, they drop C2 gear of all slots, including the tier sets. And the heroics give you one additional C3 piece of jewelry or cloak.
This has two important effects. First, there is only one tier of armor at any one time. There are no recolors or anything similar. Gear inflation is kept to a minimum, especially that of armor and weapon inflation.
Second, the heroic loot is usually available to the widest pool of players as possible. All healers can go for the heroic healer ring. You won't end up with the situation where a heroic paladin healer plate drops and everyone groans. As well, since rings and trinkets have two slots, the normal rings and trinkets of the next tier will still be valued.
A high-end edge raid would still see significant upgrades in heroics, just from upgrading all her jewelry. But she would also see good upgrades in normals, while not completely obsoleting the heroics of the previous tier.
I think that this would strike a good balance between reward and upgrades from tier to tier. Tier armor would be more unique, and hopefully more recognizable.