As I said in another thread:
Those who do not understand Master Of Magic are condemned to reinvent it - badly.
However, the game does have significant design flaws that shouldn't be repeated. That it has lots of balance issues - things costing too much or too little compared to others - shouldn't surprise anyone at this point. So I don't see the point of discussing balance of individual spells, units, races. Please don't discuss good things of MOM here - there are numerous other threads. Let's focus on broader issues instead. I'll start.
For my taste direct damage is too widespread and dominating in MOM. Variety, creativity suffers. Dominating, because you play against the AI, and on Hard and Impossible you spend most of the time being hit with them. Resisting it is one of main challenges. Player rarely has enough mana to afford powered-up spells the way AI can, time after time after time. This is especially aggravating because for most magic schools direct damage is available from only few spells. So you end up seeing the same few spells a lot. Life Drain, Psionic Blast, Ice Bolt (at least this one is uncommon), Fire Bolt. Even Life's Star Fires can be annoying if you use chaos or death units. At least these spells differ quite a lot - PB ignores armour, IB halves it, LD creates undead from units it kills. Arguably omnipresent direct damage is why the easiest way to play MOM is with strong heroes, high-end units or high-end summons (killer stack). Omnipresent direct damage is also why you can take ridiculous losses when pursuing isolated enemy units, which can retreat making things worse. Which brings me to the next point.
Retreating mechanic sucks. Basically there's a random chance for each unit to die, depending only on difficulty (much lower on Easy). You can attempt to kill the same Settlers several times and suffer direct damage each time. Fortunately this won't be a problem in Elemental - I hear it already uses my favourite mechanic, like AoW:SM. Units need to retreat to a designated zone.
Very low variety in unit speed. Most units move at 1 square/turn, sometimes 2. Even those with 2 movement points are often bogged by swamps, hills, mountains, rivers, tundra, forests which cost at least 2 points. Amusingly (or perhaps not), unless you move units square by square, they will use the same pathfinding algorithm. So units with 1 movement point, or floating spirits will avoid swamps and mountains even though they are not slowed. MOM is also guilty of having multiple units with 1 movement and Forestry/Mountaineering, which is totally pointless unless you have the Life spell called Endurance. To my knowledge it's the only movement booster which increases movement points instead of reducing the cost.
Related to the above - hordes of rather ordinary units, especially infantry, are hard to use. One of best infantry there is - pikemen - still have 1 movement point and 1 HP (direct damage!). Because of the way most boosters work, most units can only go from 1 square/turn to 2 squares/turn (at 0.5 MP each). Word of Recall is good, but it's Sorcery magic. Enchanted Road - again, Sorcery. Floating Island - Sorcery. Wind Mastery - Sorcery, and there's an error either in implementation or description. It says it doubles movement speed, but it grants +50%. Floating Island - again, Sorcery magic. And only few races have better (faster than 2, more capacity) ships. Oh, I just learned Orcs have warships - so in some ways they are better than nomads (shaman instead of priests are also an advantage if you need healing early). For most part "transporting units by sea" doesn't speed things up.The thing is many ways of magical transport are available in Sorcery magic, among them Word of Recall and perhaps Enchanted Road are so powerful they render the others redundant and obsolete.
That was movement of ordinary units. Now to the direct damage issue. Infantry and other low-levels are quite vulnerable to it. Most of +resistance bonuses are single target only, promoting single strong units. You can be fine if you find a hero with Prayermaster skill. You also want abilities like Warlord, and build Fighter's Guild and War College. Life magic for Crusade if you don't mind playing an overpowered school.
Early game is very boring, and can be frustrating. Your city is very inflexible, you have small vision radius (and need food so can't afford scouts). You have small spellcasting Skill so can't summon a few units quickly. Skeletons are great as a pop-up army, but hardly more efficient than Hell Hounds. There's little to do in the early game, for almost all races it's the same order: granary, marketplace, farmer's market, then +production. Granary, Stables, Wolf Riders is great if there's anything to conquer (only halflings can really kick your butt). I like gnolls, because they expand mostly by conquest and not settlers. This implies a military infrastructure and an army. The world is hostile in MOM and you need to protect your settlements. Phantom warriors, multiple hell hounds, a demon or an air elemental can appear quite early and raze them to the ground.
Implementation of Death (debuffs) magic is a major design flaw. Life magic is just as bad, but in reverse. Both are examples how not to do it. You end up fighting many of units in the game. What is a weakening spell ? A chance to lower stats of one unit. Let's simplify, weakening spell has a chance to kill a unit (true at least for Black Sleep) and costs mana even if it fails ! There's one exception - Possession. Successfully enchanting a creature allows you to kill stuff with it, so it's more than single target really. Master Of Magic has lots of fantastic races and creatures, lots of targets with high resistance. And I've just established the game is about few vs many. You need to use either better units, or use them better, or both. You'll be killing swarms either way. In this scenario, buffing a single unit is better, because your single unit can potentially kill many enemies. So weakening spells are almost always worse by definition. In theory, your several units could benefit from weakening a single strong enemy. But there are few strong enemies with bad resistance ! Death (and to lesser extent - Chaos) has another problem, too. Schools which buff cities also benefit from few vs many situation. Until you have more cities (at which point you've probably won the game) that's how it looks. So it makes more sense to improve them. I play boardgames, and in some strictly harmful effects are unpopular. Dominion (the card game, not to be mistaken with Dominions) is a good example. It's essentially a race game where each of you builds a deck (during game, unlike M:TG). Whoever has the most points at the end, wins. When playing with several people, attacking one makes one player weaker, others unaffected. But you've just lost an opportunity to grow. Attacking people is what everyone hopes someone will do, but doesn't like to do that himself. In games of this kind it can be hard to gang up on a runaway leader because strictly speaking no one can benefit from it. Death and Chaos schools are similar in Master Of Magic - you damage one wizard, but you spend resources and don't help yourself. This is often bad if you intend to capture enemy cities - will there be anything left* ? Another problem of Death is that you have so few buffs. If you face counterspells (including nodes) you can't walk in pre-enchanted.
Ranged Combat could be a lot better. Regular bowmen are a joke - they start with 1 strenght attack and range penalties. Stronger units, like Longbowmen and Slingers don't really need to wait for enemies to get in range. Usually you can start shooting right away. There are no obstacles aside from city walls. Units with magical attacks (shamans, priests, magicians) have no range penatly and to make things worse only 4 shots. They'll be gone in a blink of eye. Worse, because any flanking attempt, killing ranged units before they deal damage, is doomed to fail. For a good implementation, see Age of Wonders: Shadow Magic, or Dominions 3.
* One of games on my ToDo list: Revenge of the Klackons. Raze all other cities, and use Chaos magic to set the world on fire.