I know this is some pretty well travelled territory in most regards, but I think we could all benefit from having a place we can all look (If not in a book that those wonderful people at Paizo publish) to see how these scenarios have been handled in the past.
I'd love to see this turn into a repository of successful positive techniques that help DMs and players enhance their games while weeding out so many of the things that can ruin games and friendships.
A note about powergaming. I think that some people will consider this cheating and others won't, so for those of you who do, simply look at this as unbalancing the game.
I'll begin with my scenario, what I've done, and what I'm considering next. I have a player who builds excellent characters. They have depth, goals, personalities, and even when the temptation is there, doesn't metagame. He does, however, build overpowered characters. His characters always outshine everyone else's in combat. My way of handling that is to make small subtle consequences that are a result. For instance, he casts a lot of fire and explosive spells in a house, it collapses. He melts the bad guy and so does the treasure. He kills a PC he is brought to trial.
Now, that isn't my problem. My problem is that he feels it is justified, if not encouraged, to change the rules to suit his needs. This includes making new spells, feats, etc. He does this without my knowledge or consent most of the time.
To his credit, he does try to be as fair as he can with these liberties, but I have found issues with all of his creations to date, and I have only found out about them after he has used them, and not before.
I handled this by pulling him aside and saying that, now that his character is in an immediate danger of dying, that we need to talk about his new character. I told him that I realize that he gets a tremendous joy from finding weird and powerful combinations in the rules, and what while that does unbalance the game, he is an exceptional role-player, and I think that is fantastic. I also told him that I cannot allow him to take any more liberties with the material that is written. That it was cheating to do so, no matter how small and fair he feels his adjustments are. I ended it with saying that while I may not allow whatever it is he is looking at, that he has to tell me, because it is my job as DM to make those calls, and not his.
His response was that every book makes it very clear that the rules are only guides and should be changed to fit what is fun. He doesn't feel this is cheating, and I would love to find a printed definition of what he was doing to say that he is cheating, but I have never seen anyone describe this as a problem.
My next step is, while I would love to reach a perfect understanding with him on this, to just tell him that I am adamant about this, and I will not allow it.
That is my scenario, and I would be very interested to hear all of your opinions on this and other instances of cheating and how you think it is best to solve them.