It was annoying that they did not include a focus limiter switch, and it's painful to see that they've now changed the design (and at such a price) to include what should've been there. However, I feel that when I'm careful I can usually work around this problem.
Based on my experience and observations, the resulting images would not be acceptable.
That's not been my experience. Did you look at the teleconverter-attached images at POTN forums? With the EF Extender III I rarely have any problem with the 2011 version.
If you are shooting with a camera with smaller pixel pitch than the 7D and need critical resolution then there may be a problem. Occasionally the images seem somewhat less than critically sharp - but only at 1:1 magnification (discounting focus errors of course). I've got a good number of shots that are more than acceptably sharp in my view. The weakness of the lens and TC combination comes when shooting at somewhat longer ranges against a busy background - occasionally (such as an image across a swamp / small lake) I have gotten an unacceptably busy rendition of OOF backgrounds. No doubt the 200-400 will excel in this area, hopefully even with the TC active.
The 200-400 will be the single-lens option for wildlife if you cannot afford to remove the lens in the field (I admit this is somewhat burdensome to change), but 120-200mm has been useful surprisingly often and f/2.8 even more so.
After all these considerations, I would be reluctant to toss out the 120-300 entirely in favor of the 200-400 TC 1.4 - especially as it seems to excel in relatively close-up to medium range photography (although you have to work around the minimum focus distance - 1.5m at the wide end, and 2.5m at the far end - it is able to focus closer than many other lenses in this range). The price on the original model couldn't be beaten, either - maybe one of the better lens deals in recent times, and I hope the price increase doesn't reflect Sigma's belief they sold the original too cheaply. I was definitely limited by funds to that lens, however, and for that reason the 120-300 + TC combination will still be tempting compared to the 200-400mm. It seems to handily beat consumer-oriented lenses in the 1X0-400mm and 1X0-5X0 (etc.) ranges.