First off, I wanted to thank everyone for their warm and helpful welcome to the forge community-you guys have been great. Secondly I wanted to request your assistance on something that's been giving me a great deal of trouble ever since I've started on building a fantasy RPG: balancing shape changing magic with both other magic and with the capabilities of non-magical types. Shape changing magic has a huge potential to become a sort of "swiss army knife" that can address any and all challenges with ease. One can ask the questions "why play a man skilled in weapon usage if I can just turn into a bear" or "why play a second-story man when I can transform into a bird" and answering them has been difficult for me, but apart from that shape changing is an common thread in a variety of legends and myths and I want to be able to handle it in my rule set. But first a little bit about the basics of my magic system.

My magic system is skill based, with a spell caster who selects the Magecraft skill selecting a mental attribute to use it with. Each mage knows spells which are made up of Factors that are expressed as bonuses or penalties. The sum of all factors in the spell applies as a bonus or penalty to the roll, meaning that weaker spells are easier to cast and cast effectively. Now I'm using a 2d10+mods task resolution system, meaning that it'll be fairly difficult for novices to deal with difficult spells (ie with high Factor penalties), so I want to consider that with whatever modifier I apply to the shape changing factor. I've already decided that cosmetic shape changing will be handled with a -1 Factor modifier-all it will really augment is disguise rolls, and making it last a while will incur additional penalties. I've hit upon a couple of different mechanical options for more substantial shape changing:

1. The roll gives you a certain number of character points per success that you can use to build the traits of the creature you're shape shifting into. This makes sense, as it allows for characters to retain some of their own traits and allows adoption of the creature's traits but could easily become overpowered.
2. Provide broad templates (such as brute or predator) for characters to shape shift into, with modifications. This is simple and could be balanced but it loses a lot of the flavor of a more nuanced approach to shape shifting. A big part of my world is that it's created by everyone involved before play starts, so it could also be hard to create a wide enough array of templates.
3. The roll allows you to redistribute a certain number of character points per success that you can use to build the traits of the creature your shape shifting into. This approach makes some sense (as many shape changers lose bits of their abilities when they take on a new form) but it might not in all cases, depending on the form. Imagine for example, a strong and stout Knight who knows a few spells who transforms into a mouse. He has enough in the way of attributes to buy them down to buy all of the necessary mouse traits, and is still possessed of average strength. So you have a mouse who by the rules who might be able to pick up 30 lbs.

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I'd love to hear your opinions on how I should approach this problem, as well as any problems that you've had with incorporating shape changing into your own systems.

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well one answer is role playing. But as far as designing a good game I think that is a weak crutch to lean on. Meaning it will surely fail. :)
On a more possibly more helpful note:
Make the magic slow to change. If a person can shapeshift at a moments notice then its too easy to exploit.
You can also make the change have a drawback such as changing is painful and takes away Hitpoints (or your games equivalent)
I can tell you how I tackled this.
In [A Time of Steel & Staves] I have given all 20 classes 10 "actions"  - "actions" are class specific "moves" or "tactics" or "skills" that would best be explained by examples
all classes get a certain amounts of actions they choose according to their level.
a shaman might choose --- "commune with spirits" and "create totems" and "totem of the armadillo [sub](improves party defense)[/sub]"
a Knight might choose --- "ride down" and "quick mount" and "spear with lance"
a druid [sub](which would be our shapeshifting class)[/sub] might choose - (shapechange: land animal" and "shapechange: water animal" and "shapechange: air animal"..

like I said their are 10 for every class. in general fighter type classes get the most -- spellcaster types get the least and rogues are in between.
So choosing a classes action becomes important to a spellcaster since they will get the least. Tempting the players with other choices was another way I was able to balance the class.
All actions take an entire round of combat to perform. for shape shifting they would not be able to attack that round of combat only change shape (which btw makes them easier to hit) . it also takes away some of their "health" (hp) .. as far as them using these abilities outside of combat. the same restrictions apply but of course mean less as having less HP outside of a fight means less as well as any time restraint. But its does help. I hope I have.

You could also consider it in economic terms.

E.G. To draw a parallel from another domain: purchasing a skill point is cheap, while purchasing an ability point is expensive; however, as you increase other skills related to that ability by one point, they become less expensive overall. At some point, the cost reverses so that you might as well have just paid for the expensive ability point instead of funnelling in all these skill points.

Now apply that same logic to shapechanging. Single-use or single-form shapechanging is cheaper, but as you increase your ability to shapechange into different things, at some point, you might as well just purchase the ability to shapechange into anything. The trick here is to figure out the economic values, and that's where is starts to get objective and sticky.

Why are you trying to make them 'balanced'?

Is it because otherwise the shapeshifting player just gets a ton more spotlight than the other players?

How about instead of trying to make everything perfectly the same (and to paraphrase the incredibles, onces everyones equally amazing in a balanced way, no one is...), you set up some mechanics that handle screen time itself. Like once the shapeshifter has had his turn in the spotlight solving a challenge easily with his shapeshift, then its someone elses turn next.

Or is it not a spotlight issue?

Callan definitely hit the nail on the head about the most obvious question. Personally, I think this is kind of a non-issue. However, if you feel like whatever rules regarding shapeshifting you've made might be exploit them, then you have two methods of recourse.

1) Change the way shapeshifting works.
2) Make it so shapeshifting magic isn't as powerful as other magic. Make a Shapeshifter subclass or something. that way, someone who wants to play just a shapeshifter will have their opportunity to do so, and you wont have to worry about balancing it with other powers that other character would get as well.

Another major point is this: While a bear might be more effective in battle than fighting with a sword (which is arguable, especially when you take a look at men like John Hirsch) The fact is that even with the many different abilities that could be given by being in the form of an animal, no other animal could pick a lock (with the exception of other primate,s but in which case, why the hell even change?

At any rate, you could get creative... You could make it so that whilst in animal form, they're not allowed to speak unless dictating their actions, since they wouldn't be able to form human words with many animal mouths...

There are plenty of little tweaks you can do if you feel the need.

Honestly though, unless you feel that shapeshifting is utterly broken, you should keep it as is and then tweak with it after some playtesting if you need to.

Firstly I want to thank everyone for their feedback-it's been really helpful thus far! Secondly, let me respond to each post in turn.

Necro- limiting individuals to a certain number of techniques or spells is something that I've already considered in the rules. As of now, I'm tending towards a max of weapon skillx2 for techniques and magecraft skillx2 for spells. I was also thinking of including a boon (a positive quality) called "able learner" or something that would increase this number, for those characters for whom versatility is a big part of their abilities. The problem is that even with this limited number of abilities I feel like shape changing still has the potential to be unbalanced in a point-based classless system.

Daniel B- figuring out the economy is precisely where I'm stuck. I'm wondering what's a good factor penalty for shape changing, but I can't even determine what system I'm going to use to represent it.

Callan/David P: It's not a spotlight issue primarily (although that's also a problem) but an effectiveness issue. A big part of my game is the premise question "what would you do if you could change the world, and how would you do it?". Characters in Shapers (the tentative name for my game) all have the ability to alter the world through the expenditure of destiny points, but also have the option of working change in the world through their "normal" capabilities (force of arms, diplomacy, magic etc.). I want each approach to be equally valid, not obviously for all situations but for each to have comparable strengths and weaknesses just so that the warrior who wants to turn a given nation into an outlaw's paradise isn't ineffectual in working towards his Purpose in comparison to the shape-shifting ascetic seeking to bring the world to enlightenment.

If tiw ere a case of balancing between the influence of personal action and the expenditure of these destiny points, to me it would make sense that you should outline exactly what kind of changes using destiny points can afford, and to what degree. Before you can define exactly what you want your destiny points to be able to do, then we're all just talking about theory, which doesn't really help when the problem is grounded in a mechanic (or lack thereof).

My short and quick answer, however, would be to make these destiny points rare, and have them have some far reaching influence, that can somewhat alter the face of the game. Making them rare gives them value, and how profound the changes they can incur determines precisely whether a person will want to save it for an opportune time, or attempt to alter things for hsi benefit immediately when he acquires one.

However, if we're talking about balancing individual action against each other in relation to these destiny points, then you have me at a bit of a loss, because you haven't quite explained your system thoroughly enough for us to be able to comment on anything other than game theory.

A good thing to remember though, is not all people are created equal. As a corollary, not all characters need be created as equal, so perhaps balancing isn't as much of an issue as one might think. It seems like the issue could be dealt with less by actually balancing characters against each other and against their impact on the game world and more on making your players feel as though they've been considered during the gaming session.

Even if it's not a matter of a spotlight problem, you can get a lot farther with getting people over some flaws that might be in your system just by designing situations targeted at giving certain characters the spotlight at any given time.

And here I am, waxing on about game theory again...

Personally, my belief on the subject is that while individual character's abilities need not be equally effective at addressing all problems, they should have comparable strengths and weaknesses compared to others. If I may make an analogy, look at a carpenter's tool set-one would be hard pressed to hammer a nail in with a saw or cut a board with a hammer but no one can claim with any real seriousness that a hammer is more useful than a saw.

I've already determined that Destiny points are going to be relatively rare, given out when characters make significant progress towards their Purpose (their overarching goal, or destiny) and that Destiny points enable the characters to change the world (sometimes permanently). My issue is that characters aren't going to just be using destiny points to alter the world. They're also going to have to resort to their own talents to do so. My balance issue (which at this point is as you said limited to game theory) is that I want various character abilities, specifically including magical shape-changing to be balanced with one another because Destiny points are going to be relatively scarce and I don't want characters who are stuck with sub-par abilities to have to lean on them to make up for the fact that their own natural abilities are less impressive than others.

I think your overestimating the effectiveness of being various kinds of animals and making assumptions about something that completely fictional (being able to turn into a bird) that aren't a given. Why be a fighter instead of a bear? Bears can't wear armor or use pole arms that have extended reach. They can't attempt to disarm an opponent (at least not very effectively). Why be a second story man instead of a bird. A bird can't carry things. A bird can't break open a window while suspended from a rope, etc... Unless the shape shifter's ability is to be any animal at any instance with none of the animal's intrinsic disadvantages, it shouldn't be a problem. Just take your best stab at "factor level" or whatever the difficulty mechanic is and play the game. If shape shifting seems too good, leave it alone and try a few more times. If its still too good, nerf it, make it more expensive or difficult or whatever. Shape shifting as a fictional ability is not intrinsically better than any other magic power or real world ability. You're creating its limits within in the context of the game.

Callan/David P: It's not a spotlight issue primarily (although that's also a problem) but an effectiveness issue. A big part of my game is the premise question "what would you do if you could change the world, and how would you do it?". Characters in Shapers (the tentative name for my game) all have the ability to alter the world through the expenditure of destiny points, but also have the option of working change in the world through their "normal" capabilities (force of arms, diplomacy, magic etc.). I want each approach to be equally valid, not obviously for all situations but for each to have comparable strengths and weaknesses just so that the warrior who wants to turn a given nation into an outlaw's paradise isn't ineffectual in working towards his Purpose in comparison to the shape-shifting ascetic seeking to bring the world to enlightenment.