Disclaimer at the top: since your implication of 7ish core raiders implies 10 man raiding, my responses are more geared towards 10 man raids, who currently are at a statistical loot disadvantage and if it makes any sense at all for the LFR system to work for a type of guild it MIGHT be 10 man... but that's a different discussion. Point is my responses are aimed at 10 man raids.
Okay, first off how hard is a loot council loot setup for any casual guild to set up? It literally takes no time and you just need 2 or 3 people to discuss in ochat who gets loot if there even ever IS more than 1 person that needs loot. Often times the only loot that multiple people need are like tier pieces or rings or something, and if they're both equally deserving then just have them /roll. If one person has gotten a ton of loot (you don't even need to track it, in a 10 person guild it's not hard to keep in your head who's been rolling in loot and who's been loot starved due to drops) then give the piece to the guy who hasn't. Hell, in my experience after the first couple weeks it really came down to "HEY, anyone want this? Okay you spoke up first here you go, no one else is saying anything" Not hard. Not complicated. Takes ZERO time to setup.
Re: spec change. Ya they need loot to do their alt spec well, but how often are they spec flopping, how important is it for them to have gear for their other spec? To my knowledge the LFR looting system doesn't really address this very well either, so imo a loot council situation is better. I still maintain that main spec > off spec. If a main raider needs the upgrade for their main spec and someone is an off spec for 1 or 2 fights, then give it to the main spec guy unless it's absolutely critical to the raid to have that off spec geared up. Problem solved. In my opinion a loot council approach is far superior to the LFR system in this regard.
Solution for the "filler" raider. Any loot that they want, do a /roll between them and your raiders that want the item. If one of your raiders win, then the loot still went to the guild and you're fine, and if there's more than 1 of your raiders that needs loot, you have a higher probability of getting loot in to the guild anyways. You could even go so far as to if you guys win the roll, discuss in gchat who really gets it (if you do a loot council structure) or if you do like a DKP bid system just do it in gchat or something. If they PuG guy wins then he got loot, hurray!
As far as LFR killing off more "Casual" guilds. I have two responses: 1) LFR IS designed for the more casual person that can't raid on a consistent schedule. It's a quality of life increase for those players, how is this a bad thing for those guilds? Typically it helps. They don't have to find fillers, if only 5 people are on they can just queue together and still have fun. 2) I think statistically more people raided normal in DS because they were able to gain entry to the raiding scene due to LFR. Someone may want to back me up on this, but I'm pretty sure LFR has seen an INCREASE in the number of normal mode guilds, not a decrease.
Furthermore, I think for a 10 man guild setting, the raid finder loot system would lead to either statistically less loot (or at least the same amount) depending on what boss tables look like because there's a chance that no loot at all drops, 2 random people just get gold. There's no chance for offspec stuff, no chance for DEing it into enchanting mats. I mean that kinda happens later in the game once a lot of people have the loot they want, but with the LFR system this could happen like... week 1 and 2, that would suck.
Raid finder loot system for 10 man raids is not better, it's just lazy.
You want less loot drama? Decrease the focus on loot. Get loot to kill bosses, don't kill bosses to get loot.
"If the world is something you accept rather than interpret, then you're susceptible to the influence of charismatic idiots." -Neil deGrasee Tyson
Twitter @Aggathon || @Tankspot || Twitch.Tv/Aggathon