There are many different kinds of loot rules. I am a pugger and therefore dont have to deal with many of them. DKP is not in my vocabulary. Most PuGs seem to have a standard system. It is usually something along the lines of X Need Roll Wins (usually 1 or 2), One Tier piece win, and the rest are greed. I have also been in runs where they dont even turn master looter on and if you need it they just give it to you. The rolls are usually for main spec first followed by offspec.
Loot etiquette is very important to decrease loot drama and nerd rage. If something drops and is a side grade for you, but a big upgrade for someone else, it is standard to pass on the item. This can activate your good kara regen and give you a nice chance at something else that you can really need.
Sometimes, people just don't get it. If they system is abusable, they will abuse it. A great example happened over the weekend. An alt warrior, in the run as a DPS was rolling on (and winning) not only DPS pieces, but most of the tanking drops as well. Myself and another tank could only really use a few of the pieces that dropped. Probably a good 10 tanking items dropped and the only upgrades for us were a helmet and Broken Promise. The DPS warrior rolled and won both items. The Paladin tank G-Quit in disgust.
Now, most people would say that the DPS warrior was wrong in this scenario for being a loot whore and not adhering to Loot Etiquette. In this case, the Raid Leader/Master Looter is just as much at fault.
The RL made the rules as follows from the beggining of the run "Free Roll, Main Spec First. Please be considerate and dont be greedy." He did not follow his own looting etiquette in two ways:
1) The DPS Warrior was in the run as a DPS (and on an alt). He had not tanked any Heroics yet and had pretty much been DPS since turning 80. Although he said Tanking is is main spec, he had not yet purchased Dual Spec. He should have been given items according to what spec he was unless it was not needed by the other tanks.
2) He let people be greedy without doing anything about it. He got frustrated with the Warrior constantly rolling on tank gear, but would give it to him anyways. They he told him that he would only be able to get DPS gear. Then a few bosses later, he gave him more tank gear over the real tanks.
A VERY important part of loot etiquette is sticking to your loot rules. If you go switching the rules in the middle of the run, it shows favortism and is going to piss a lot of people off. If you stick to your rules from the get go, nobody can accuse you of being unfair when you are distributing loot. It will lead to a lot less hostility and a much more relaxed run.
If you make a run free-roll, but also instruct people not to be greedy, it is your responsibilty to follow up on it. You should be the person saying, "Warrior X, you have won three pieces and Paladin Z has won zero. I am going to pass it to him to be fair. Remember not to be greedy."
Be a team player and eventually the loot gods will look favorably upon you. Be a loot whore and eventually nobody will want to run with you. You only get one reputation. Use it wisely.