Oh, giving the player power to make a world and otherwise help in GMing process is fine, something I do sometimes. The thing is, a reasonably skilled player can do that without it involving adding power to their character. Indeed, I've seen this device make players less "power-gamey" because it makes them think of the larger picture, they want to interest the other players in their story etc.

But I don't think this really relates to "my character has excess-or-god-like powers but I won't use them" situation. The point isn't the characters can't have more free-form powers that GM interprets sympathetically. The point is if the player has to say their character has special over-the-top-powers, they are creating a rule, not leaving things for free collaboration. I remember in a FATE game in which one player specified has character's aspect that "world's greatest thief" and this both abuse of the FATE system and actual harassment/psychological abuse of another players. I learned the lesson that aspects never should superlatives to them.