I've been told that simplet instructing them to form a 5-man raid group instead of a standard group will reduce their XP and ability to complete instance quests. I don't know if that is true.
You can not complete any quests in a Raid Group that are not labeled as RAID in the quest log. Hence the issue here is that you run into problems with kill and pickup quests. Items for pickup may not drop and you won't get credit for killing xyz boss.
Can I ask why you want to award loot by points in a 5 man? Typically 5 man instances will be pugged or run in a group of friends more often than in a guild. Certain levels of trust must be assumed when running a lot of game content. Here are some basic loot rules we use when running 5 man.
While it happens infrequently we do kick people that don't follow loot rules and ninja any item in a run.
Leave loot set to Group Loot. This by nature is round robin for who can pickup general white and gray items. You can of course adjust this but by default anything Green or higher would be rolled on. Most of the time in this loot format I have never seen any problems with having everyone select GREED only for all items no matter what quality that are Bind on Equip. For Bind on Pickup items we typically there are 2 scenarios. If you have a person in the group that can disenchant this person only rolls GREED on all BOP items. Everyone else would roll NEED if and only if they actually needed and can use the item. When you have an enchanter that recieves an item the item is immediately disenchanted and everyone in the party does a /roll to see who wins the enchanting materials. If you have no enchanter then it is typical that most people will just GREED all BOP loot and again anyone that NEEDS will roll NEED if and only if they can and will use the item.
I think that you will find using loot points in a 5 man instance will slow things down and take some of the fun out of it. You will also find that some people will just begin to harbor points so that they have more when they hit higher content and loot that can be used to get people ready for 10 and 25 man content will go to waste. I've been playing WoW since it came out and I have only run into 2 or 3 instances where we actually kicked someone from a group because they ninja'd something or didn't follow loot rules.
This is not to say that I am totally against using any kind of points in a 5 man run but just not to distribute loot. It is a good way to allow people to build points and encourage guild teamwork to start to develop before you hit the bigger content.
That said there is also another advantage to not doing it and not forcing guild members to run with one another. Running in a pickup group you may find a player that is really good and not in a guild or openly expressing discontent for his/her current guild during the instance. This is great for recruiting because you have seen the player in action and could be a good position to start recruiting them. If you only run 5 mans with your own guild members the chances of recruiting other good players lessons.
