Something worth pointing out is that not everyone is as geographically sharp as we are. I've met people who are, for lack of a better term, geographically retarded. I used to know someone who lived at Islington and Finch, and I spent 10 minutes trying to show him that to get to Dufferin and Bloor it is more direct to take a bus to Bloor and the subway across, than to take a Finch bus to Yonge, subway down to Bloor, and then back. Maybe an extreme example, but the fact of the matter is that a lot of people have no idea how long their trips actually are. The reason why GO has been able to do this is because of its commuter focus, the majority of trips are predictable and not as dynamic as local services.
Another thing worth pointing out is how this could affect people's trips and the resources on the system. People may take slower, yet more direct routes rather than faster, yet less direct routes. For example, someone from Bathurst and Finch who commutes to Bathurst and Bloor might take take the bus all the way down rather than the subway. If this happens en mass (which is possible, for example, the Viva Purple is cram packed between RHC and York University while few take the GO even though it is faster, more direct, and costs $1.50 more), could local services handle the overflow?
I'm not necessarily saying that a pure fare by distance system is wrong, but it may not be as perfect as some claim to be.