I had a dnd character who had a mental breakdown because we didn’t get a beach day. My character killed her mother, died herself, and was just generally tired of constantly being in danger for 2 months. The inducing incident was actually her death. We were surprised in our home base by an illitholich, which is a mindflayer lich. Our DM failed to realize only our Rogue has a good intelligence save, so they had a shot at saving against an effect that stuns for 10 ROUNDS. We had just gotten away from that threat (by completely ditching our base and getting protection from divination magic) when a bunch of demons attacked us and nearly killed my character again. I was gonna retire that character if the dm didn’t kill the campaign there anyway.
So I think I would disagree with "system serves story" to a degree. The problem I run into as a more rules-lawyery DM is that I play games with a structured setup because I feel like, if I don't, I'm just playing make-believe with people in second grade again, and at some point there will be a conflict that devolves to "yuh-huh" vs "nuh-uh" and we'll be stuck. I have players, too, who like to take a system we're playing and wear it around their pinky finger to see if it snaps in half. If I'm letting little things slide, they latch on to that and see how far it can be pressed, and then my players who don't do that end up being pretty useless by comparison. So I like to maintain structure. I'll definitely rule something quickly in the moment to keep the game running, but I always make a note to go back and review later, so I can start the next session with "okay I know we did this last time but it actually works like this, just for future reference". That said, one of the failings I will acknowledge for myself is not doing enough things for the sake of the Rule of Cool.
If you're using systems to patch a combative player vs. GM dynamic, lack of trust, and power-tripping, they're only going to be a band-aid. If you actually address those as what they are, head-on, you won't need to use game-systems to combat chicanery. As you mentioned, but glossed over, every system has loopholes that bad-faith players can readily exploit. Any time you break RAW, even in absurd cases (such as stopping the iconic commoner railgun) you are effectively affirming Jacob's statement of storytelling over systems. It is simply easier in the moment to rely on borrowed ethos than to justify your views as your own, and convince others of them on their merit. However, as you mentioned, this leaves the issues ever-present, creating steady, unfun stress in your games. Now note, I am not speaking against mechanics. I am something of a mechanics wonk. Mechanics are great for setting expectations, giving ideas, and introducing new twists into the story. Learning the complex synergies of various powersets is satisfying, and the risk introduced by random elements like dice is primally engaging. I know a bunch of diceless freeformists, who hold that they're more enlightened than us dull "roll-players" and I think that's hogwash. Diceless freeform gets stale quick, even with the most cohesive, cooperative and creative players. I think everyone who's played RPGs has had some moments where a freak roll turned the story down a path none expected, and turned out better than what anyone had planned. That is not a fault of the planners, but a merit of the dice. First, however, we must understand what mechanics *aren't* so we can better appreciate them for what they *are*.
