We had an instance a week or so ago where a badge was handed out in a thread.
Immediately the thread deteriorated into chaos over arguing that the badge was not deserved.
Within that context I have a few suggestions.
1) I would like to see all badges that incentivize bad behavior, removed.
2) I think badges should be awarded at a set date (maybe monthly), in a place separate from the thread itself in order to prevent arguments such as an announcements page. Users should not have the ability to comment on this announcements page.
3) Similar to how we are currently able to flag posts. I think it would be great if users themselves could nominate other users for badges. In other words, you could click on a post and select from a dropdown. The user nominated would then receive a message that they have been nominated for a badge (although I wouldn't specifically state which badge in order to keep it a surprise :)
4) 1 month delay for new users before they are able to nominate others for new badges in order to avoid people simply creating duplicate accounts and giving themselves badges. Also do no allow users to nominate themselves directly.
5) Only allow users 1 nomination per month. So only allow them 1 nomination across all badges. For example, if I were to nominate acostoss for a badge. I would not be able to nominate any other user for any other badge until we rolled into the next badge month.
6) All posts specifically requesting that people nominate them for badges should be against the rules and deleted.
7) For badges such as the Eternal Flame (and really all badges) I think it would be best to have a clear definition for what qualities you should look for when awarding a badge.
8) Possibly set a threshold that must be met for each badge. For example some badges might require 5 nominations, others might need 10. If that threshold is not reached, nominations would of course roll forward to the next month.
That's all I can come up with at the moment. The point being to somewhat automate the nomination process and remove the responsibility from mods. Also, it's important to keep the nomination process anonymous.