Today, if I have a grad student interested in security who wants some ideas for things to work on, I could ask them to go look up papers in Oakland, CCS and NDSS over the last couple of years and see if anything catches their fancy. This works because there's a reasonable number of papers that I could reasonably expect a PhD student to look through. Asking them to look up all the stuff that ends up on arXiv or the IACR's ePrints is not reasonable. There's just too much stuff there and most of it is not worth looking at that.
So, you might say the endorsements will take care of this. CCS et al. could just endorse some limited subset of the IACR ePrints. But this leads to problem (ii) above. Right now, we have a bunch of high-profile researchers (who are mostly at places like MIT and Stanford) who just put up stuff on arXiv without any peer review and they start picking-up citations right away because of their "elite" status. Some of this is deserved, because these people have done good work. But some of this is also just a publication cartel where everybody cites their friends' work and make it impossible for others to break into a field.
The larger point is that in a scenario where there are so many papers that nobody could possibly look at all of them will lead to a few groups accumulating all the citations and all the awards. This will especially be unfair to researchers in the developing world -- people at places like Bilikent, Tsinghua, and the IITs -- where researchers don't have the PR muscle power to highlight unpublished stuff.