@Spazzguy: The Fel Iron Bomb already averages 550 damage per blast in 49s, so the 825 from cobalt frag bomb isn't a huge jump. The explosive decoy's mean 1750 blast would indeed create an issue, even somewhat mitigated by the stamina gained from the Goblin Rocket Launcher and Gnomish Poultryizer. As for the 5% bonus, it's nice, but even a single piece of engineering gear can eclipse the 15-20 points in a base stat gained from the 5% bonus. ...Actually, the engineering items would by far do much more to reduce the creative complexity of choice, as they're easily BiS for the head, belt, feet, and trinkets for all classes.
@Tinkerton: Other than the serious issue with 20s getting mounts while the rest of the bracket doesn't, I don't see a "stomp" on any bracket by gaining the goodies at the top of the bracket. All the x9 XP-off brackets play at the top of the bracket anyway, so no stomp there. Only the 10-14 bracket would see somewhat of a shift to a more even dispersion between the poles of the bracket, and that's more of a (admittedly significant) cultural issue instead of a technical issue. For XP-on, the vast majority of players don't level professions anywhere near their cap. Those that do, twinker up everything else anyway. Those few players already leverage current gear disparities to go stomping. The same goes for Satchel gear.
A bracket shift will attract more players by taking the edge off gearing issues in many brackets. Between grandfathered gear, capped accounts, and some rebalancing of class abilities, a bracket shift would nudge twinking in a more positive direction. Is that worth the work of essentially regearing everyone's twinks? That's up for debate. I'm all for it, as I think all of the brackets will play better. Several solid counterarguments appear in the responses.
Now, your suggestion for bringing back orange and red quests really intrigues me. At first I wanted to dismiss it, as it could confuse newer players. But WoW already has a mechanic where you see a white exclamation point over questgivers who will soon offer you quests after you attain another level or two. So heck yeah, open up orange and red quests again, and make them obtainable from the "white question mark givers" as a warning. It will give casual players a sense of increasing power (which is exactly what Blizz wanted) as players level up and can handle the quests as they turn yellow, while tackling some grandfathering issues in the lower and midbrackets. It might create some other gear disparities depending on available quests, but that's no different than how things are now.
I think it's a great idea.