Taken far enough it quickly becomes a very strange type of self-modifying or 'nomic' game [http://en.wikipedia.org/wiki/Nomic], where those with the karma get to make the rules about how karma is made, transferred, destroyed.

I'm very curious about the limits of this kind of voting determing the content, permissions and abilities of users to a web site, and the point where gamability becomes a fatal problem.

You could take it stupidly far, and have the highest karma users be able to alter the source code of the site or make similar deep structural changes. If I had the time to learn Arc it'd be great fun to hack the HN source to support this kind of tomfoolery.