The disconnect in PoE between your implied state (debilitating visions, sleep deprivation, and finally insanity), the fact that you don't suffer any ill effects at all (and no, a quick scripted conversation with some of your teammates where they fuss over you bumbling in your sleep doesn't cut it), is, coupled with your Watcher powers having so little an effect on the gameplay and quest solutions (they did do a couple of interesting things with it in White March, though), the biggest problem here.
When I first saw all the visions of people getting tortured, I thought the setting would allow me to manipulate souls to a greater degree - put the souls which haven't passed to the Wheel to rest, awaken the fragments of past incarnations in NPCs, meld them together, etc. Basically, I was hoping for a combination of PS:T, with your former lives playing a big part in the game, and MoTB's (optimistic, yes, I know), unique chosen one status giving the player the means to do quests only the PC can solve.
This should have definitely been handled better. MoTB was on the right track, even though I'm not a fan of timers in RPGs, and even BG2 had a better system in place when Irenicus took your soul (the Slayer transformation in Spellhold gave you a new ability, which came with a -2 reputation every time you used it. Granted, rep was laughably easy to increase, but at least it was something, here you have no penalties at all).
Still, even though they fumbled it, I still consider self-preservation a better motivation than BG2's, which doesn't work for every PC.