Since themes are all about fluff, or at least should be all about fluff, the only valid reason to dissalow them is because of fluff.

Gomez

The scope of the Masked Lord theme baffles me. It literally hands the keys to the kingdom to level one players who have had no time or opportunity to create any kind of connection in game. It completely goes against convention from earlier versions of D&D, since characters didn't accumulate followers or property until much later in the game. It goes against conventions of 4e, since Legendary Sovereign and other such game elements show up as Epic Destinies and not earlier in the game. I'm not really sure where the designer got the notion that a Masked Lord theme would be a good idea.

I would be happy if the Globals banned this theme from LFR, since it gives a disproportionate amount of narrative control to characters that haven't otherwise earned it. The only positive thing about this theme is that it is so mechanically terrible that we're never likely to end up with 20+ Masked Lords participating in the same event (like a BI). The most comparable theme to this in terms of letting theme define narrative control is the Harper theme, and that can be explained away as having a Harper pin without actually being a full member Harper. I don't see a similar measure for mitigating the effect of promoting characters to Masked Lord levels of influence at first level.

I say this as a Waterdeep fan: my highest level character is from Waterdeep and is heavily invested in the Waterdeep metaplot. Retraining to the Masked Lord theme would make sense for my character, but that's only because he's level 20 and has been an Heir of Mirt since level 11. I'd do it, even though taking the theme wouldn't do anything for my character, mechanically speaking. But for a level one character in a living campaign?

NO.

If we ban everything what can be role-played poorly we have to ban everything.

I think you are attributing too much power to it.   It has a Lvl 5 feature that might (or should if its fun!) come in handy in Waterdeep in a specific situation.   Obviously the grand title has attached some expectations to the theme that aren't supported mechanically.   Sure, in a home game you can make this have all the social pull in the world.   In LFR I doubt it will have any impact at all except for flavor.  

From my viewpoint, the principal concern with the Masked Lord theme as a ruler of the City, you are entitled by the FR Waterdeep Lore, which has been cited in LFR Waterdeep adventures, explaining about the Masked Lords, to regalia and certain powers within the City. This is not flavor text, it is the campaign setting lore of laws, customs and culture.  (Flavor text is like what does a magic missile look like.)  To me, to say to disregard that, is like saying disregard the laws and customs of a major country in RL because it is not like they are laws of physics and chemistry.  To say to ignore FR canon, while I dislike that, also means I ignore the canon I already used in Waterdeep adventures.  To me, to be inconsistent is really bad.

While we could make a statement that PC Masked Lords are not entitled to be treated the same way as NPC Masked Lords, but then, what is the point?

In a perfect (shared) world, I would like to have a story award in paragon tier for outstanding service to Waterdeep, that a resident of Waterdeep has been asked to be a Masked Lord, with appropriate benefits. I have actually been thinking about that since the campaign started.
  That is one of the classic traditions in Waterdeep of how adventurers are selected to be Masked Lords.  Would not a story selection make more sense?  I think the idea of story award access is one of the options on the table for the Global Admins to consider.

Keith