I also noticed that bug.
The point is that, when i change loot mode into "Master Loot" (let's suppose i'm leading), sometimes some party members don't appear in the list, when i want to assing an item. We use to solve that by changing into Free Loot, hoping noone decides to take it first.
The other problem is that even activating Master Loot, most items can be taken by any player just by clicking over them and accepting that questino such as "That item will bind when picked up, really want to pick it up?"