Yes, wow. I'm surprised high schools have not yet seen this flaw in their system and corrected it. Our high school, many moons ago, had a similar system. It provided a real disincentive to any students who were primarily in honors/higher weighted classes to delve into too many non-honors classes, lest their GPA would artificially plummet! It bothered me back then, too!
One thing I've seen schools do is offer "honors" for some "less academic" classes. This classes are challenging, and require invitation. These can be controversial, too, though.
But then I've heard of the "flip side," where schools have removed such weighting, meaning that students who opt to "accept" the honors classes that were recommended for them...no longer get the GPA boost. Those classes, in my experience, did not COMPARE to regular classes (more work, more challenging, etc.), so this is also a terrible solution, IMO.
Has anyone seen a GOOD fair system for including weighted GPAs, but not discouraging lower GPA classes?