I'm not a fan at all of allocated seating. I think it tries to sort out a problem that doesn't really exist. People are more than capable of working it out for themselves. It doesn't need the work of a computer to tell people where to sit.
The only benefit is that it takes away the scrum at the gate, but even then, passengers may still be rushing to secure their space for luggage in the overhead lockers.
Passengers should definitely be able to pay extra to reserve seats if they want to. The passengers who choose not to in my opinion should not be allocated seats and just simply have the free seating policy.
Passengers who reserve seats or just pay priority boarding (or have special assistance) should of course be boarded first. Then, all they should do is organise the remaining people who haven't paid anything extra into 2 or 3 groups based on their check-in position, or "sequence number".
For example, all passengers with seq. numbers 1 - 59 come forward first, then 60 - 119 etc. but allowing exceptions for a small overlap for passengers in the same party, or at least certainly with children.
They have two queues at the boarding gates anyway, the "priority" and the "other" queues. Whilst say the reserved seating and priority boarding passengers are boarding, they could gather passengers in the other queue for seq. numbers 1 - 59 and so on, to avoid delay switching between the different groups.
Also with free seating, the cabin crew can urge people to move down towards the centre of the cabin (if boarding from front and rear doors) to stop people blocking the aisle near the doors, which is a common problem I find with allocated seating.
That way we wouldn't have these problems of people being separated from their family and it would be in my mind a much fairer way to do it. Plus it might also give some people the incentive to pull their finger out and check-in earlier so they can board earlier.