Why would you not apply the bonuses?
Because that way you can still get the 16-20 benefit more cheaply if you choose to emphasize your strengths.
I kinda agree, AC, but look at it this way: orc/2 adds 2 after adding points to Str, but subtracts 2 before adding points to Int. If the orc and human both go for 18 Str, and 8 Int, the human pays...[mutter] carry the three[/mutter]...16 and the orc/2 pays 12. Playing to his weakness, the orc/2 can balance the human. Playing to his strengths, however, he outstrips him. Does that work or is it still distasteful?
Exactly.
In your example, the half-orc starts with a 6 Int. so to get a 16, he needs 12 points (2 for 6->8 and 10 for 8->16) instead of 16 (8->18 then apply penalties) right? This saves him 4 points. Which would put his Str at 14 (instead of 10). Congrats, for the same amount of points, he's now on par with a human. So what does this build result in? A human without a bonus feat? Why would I play a half-orc? I could play a human and just say he looks like a half-orc.
Absolutely, half-orcs still suck noodles. They need to have something other than just racial stat adjustments. Still, this system makes it so that you don't feel as terrible and shoehorned as before, and eliminates the "you're actually less orcish than a human" problem that existed before.