http://en.wikipedia.org/wiki/Arrow%27s_impossibility_theorem
In short, no "fair" voting system can satisfy these three criteria:
- If every voter prefers X over Y, then the group prefers X over Y.
- If every voter prefers X over Y, then adding Z to the slate won't change the group's preference of X over Y.
- There is no dictator.
There exist `better' ranking systems such as ones involving markov chains (http://www10.org/cdrom/papers/577/), but I'd imagine that the Oscar Committee requires their voting/ranking scheme to be palatable to the general public. Using IRV is a good step in the direction of `better' voting, while still being explainable in a few sentences.
Is the 2nd factor a problem with the voting system or with the psychology of the voters though?
You need an additional requirement, "The citizen's true ordering of preferences is the only data presented to the algorithm." In other words the algorithm can't access the scalar utility function, only the ordering, and every similar ordering has to result in the same social ordering - no mixture of utility functions will satisfy this, obviously. If you want to prevent "strategic voting" that would impose other requirements as well.
Impossibility theorems often aren't as impossible as they look, and indeed Arrow's Impossibility Theorem makes a good illustration of that, especially as the evasive answer is pretty obvious if you walk around thinking of expected utility maximizers all day long. Doesn't work for non-mind-reading applications because of the strategic voting problem, but in terms of whether it's possible for a society to aggregate the true utilities of its citizens, no sweat.
The requirement that you state is in the definition. It's just implicit in the word "voting" rather than explicitly stated. Arrow's Theorem does rely on an explicit definition of voting, which is that voters make discrete choices about their candidates subject to certain criteria. Some theorem (possibly part of Arrow's Theorem) says that it's not possible to eliminate the potential for strategic voting in a 3+ party system without negating other desirable qualities like those listed above.
It's not meant to describe situations where their perfectly-weighted preferences can be measured -- as if by some mind-reading utility-function-extraction-and-summation process. (Can two persons' Utils be meaningfully compared or summed?)