Electing a total nut case is a serious protential problem. In particular, the US president has too much power to use US troops outside the US without congresional approval.
However, I can also see some offsetting factors. The most important being that, unlike most parlamentary systems, there is no connection between the president's party and congressional party lines. It is very likely that a radical president (from either end of the spectrum) would find himself without the power to push the things he want through congress.
Keep in mind also, that with this system you can't get into an Italy style n-way deadlock. Somebody will win the election, they may end up winning with only a fraction of the votes but somebody will win.
I can see at least one other potential problem with this kind of system. First, listing a primary and secondary choice will work well initially, but there could be problems down the road. The system starts to get a little strange when there are more then 4 or 5 viable canidates. Eventually it might be necissary to move to a system where you pick your top 3 or top 4.
In some ways, it would be ideal to have people rank every canidate. But that runs into problem itself, if there are more then half a dozen entries, it is very likely that there are some I don't even know anything about.
In any case, if we did role this out nation wide, there would be 3 or 4 election cycle while people got used to the new system.
I would expect that in the first election or two the only result would be getting to see what percentage of the population really wanted to vote for Nader and the other third party canidates. However, seeing honest numbers here would give the third parties a major boost.
I also expect that the first third party canidate to get elected to president is liable to get it in the shorts. The two major parties would work together to see that the president didn't achive anything of importance. This will probably do more damage to them then to the president, but congresscritters can be amazingly vindictive and short sighted.
I thought of one advantage of having more then two viable parties that hasn't been mentioned here yet either. With every extra viable canidate added, it becomes that much harder for companies to just buy them all off.
Jay