Karma works fine. You generally have to be a pretty lousy poster to not make scholar. Getting Sage/Guru is certainly a matter of saying mostly the right things and rarely voicing unpopular opinions, but that's only reason to not care about Sage/Guru. They don't come with any added benefits anyway.
I certainly have made no effort to be well-liked, and despite people actively karma-bombing me for extended periods of time, still scholar.
Sub-default, default, and scholar work fine. Too many moderated forums fall to the mercy of their moderators' whims. Pretty much the only well-moderated forums I've ever seen were very lightly moderated anyway, at which point you may as well just implement a karma system.
There are three issues with karma, as I see it
The first is that it's effect over time is diminished. Half of the time, whatever you are by post 100 (Guru/Sage/Scholar/Nothing) is what you'll be forever. 95% of the time, by post 1000, it's pretty much set in stone. No amount of ratedowns will ever drop me to Scholar and no amount of rateups will ever raise me to Guru, short of admin intervention or an army of ratebots, the former of which will not happen and the latter of which would result in someone getting a nasty talking to.
The second is that a lot of people use it less as a "Green = Funny/Helpful/Informative, Red = Trolling/Flaming/Spamming" and use it more of a "Green = I agree, Red = I disagree" or even "Green = I like this poster, Red = I don't like this poster" or more commonly "Red = I don't like what you have to say but I can't disprove you and/or the fact that you won't agree with me is ******* me off". It's not meant to be used that way. Most forums with user moderation are strictly a report feature (which we -also- have here) and reporting a post requires you to select a reason from a drop down list, e.g. flaming, spam, posting personal information, etc.
The third, and some may disagree with me on this, is that the current rating system does not require anything other than the click of a button to rate. You aren't required to post in a topic or reply to a poster before you can rate them up/down, and you can rate any amount of posts by the user up/down for any or no reason at all. Don't like black mages? Rate me down for my avatar. Think my sig is funny? Rate me up regardless of what the post says. Don't like official forums? Rate down every single user in this thread regardless of who they are or what they said. Someone mentioned they own a PS3 and you prefer 360? Rate down every post of theirs that you can find in every forum. There's no accountability or limit to how much you can rate someone down.
I'm well aware that I have a couple people who like to rate my posts down regardless of content and a couple who like to rate them up regardless of content. My gripes with the karma system are not because I care about my karma (although I won't lie; I'd like to get Guru one day. Will never happen though) but because it has the workings of being a good form of user self-moderation that ends up turning into a popularity contest.
There are a couple alternatives I like, such as the ability to report individual posts, the removal of anonymous rate-ups/rate-downs, there are several options for user rating systems that are less prone to abuse.
Overmoderation is a bad thing, but so is no moderation at all. The best solution is to moderate... in moderation.