Agreed that the FLB mechanic needs to change. Not sure I totally agree on how it should be done. The goal should be to get rid of the ways it's being abused, but if you go too far, you end up stripping even more depth out of the game--turning it into a predictable, monotonous my turn, your turn, my turn, your turn...
So I don't love the approach of drastically restricting when FLB can be done; what I'd rather see is them tone down the reward for doing it and increasing the risk just a bit. Basically--it's supposed to be a defensive technique, so most of the reward should be defensive. In most situations, you shouldn't be able to use FLB to (re)start your own offense.
I don't have a set of ideas completely worked out, so there may be some issues here, but roughly:
-- Grounded opponents should be immune to u2, period; no more launching opponents for a combo just because you blocked a regular attack. But u2 should still work normally against jump-ins (FLB in the neutral or anti-meaty wakeup); the big reward off jump-ins should be balanced by the big risk of an u2.
-- Agreed that you should not be able to FLB while jailed; that's ridiculous. You got hit, you should have to hold some pressure. This is really unfair for characters who are dependent on certain buttons (for lack of better options) to start their offense. But after hit stun wears off, no extra "no FLB" penalty window after that. If you want guaranteed pressure, you need to land it during your hit advantage.
-- Otherwise, FLBs can happen in the same situations they do now. The main difference though--the most reward you get vs. a grounded opponent is an u3. You made the read, you spent the meter--you get to break the opponent's pressure, do some damage (can be made higher, maybe), and gain frame advantage. But that's it; you don't get a full combo or a knockdown.
That mostly just resets neutral, which is what a defensive option should do. A FLB u3 makes you plus, but now you have to play the same mind game as your opponent: Try to land a quick attack while they're jailed (safe but low reward if blocked), go for a slower hit (better chance of opening them up but maybe get FLBed in return), go for a throw, try to bait a whiff, etc.
Seems to me those simple changes get rid of the worst abuses and actually make the play/counterplay more interesting. There's still reward for doing them, but it's a small reward and you immediately have to decide again how to keep your turn, the opponent has counterplay options, etc. And this doesn't unfairly punish characters who have a ton of FLB gaps in their strings, the way the current system does.