Wouldn't that mean that if you want to install something that requires updating a DLL you'll have to have permission to overwrite the one in the system directory? So to still be able to install software as easily as people are used to, you will have to agree to overwrite system files and reboot after many more installs than you currently have to.

People will become accustomed to clicking 'Yes' when asked if they'd like to overwrite important system files. Worse security instead of better.