After Strip Mine, City in a Bottle is easily the most controversial card in 93/94. For most of it's life, it was actually extremely useless, since it only effects cards with the little scimitar in the middle on the mid right of the card.
However, a rule change for the card changed that, to call cards originally printed in Arabian Nights, and oh boy, did that change the field a lot. The rise of 93/94 also didn't hurt the cards sales, which currently sit around 100-120 USD. I traded the two I own when the price spike happened, and now that I'm involved in the format, sort of regret it (but I'll buy more I'm sure).
Now, it's no lie, City in a Bottle, in the context of this format, is extremely powerful, in fact, I'll go over each color it hits, and what cards it hits from it. Remember, in it's current oracle text, it only hurts permanents, not all cards, like how it is printed. I will also only be talking about cards that see major, or fringe play. So no Camels or merchant ships will be mentioned.
Ali from Cairo, Kird Ape, Mijae Djinn, Ydwen Efreet
Rukh Egg, Magnetic Mountain
Drop of Honey, Erhnam Djinn, Ifh-Biff Efreet,
Cyclone, Ghazban Ogre, Singing Tree, Wyluli Wolf
Jihad, King Suleiman
Flying Men, Old Man of the Sea, Serendib Djinn and Efreet, Unstable Mutation, Sindbad
Coumbajj Witches, Guardian Beast, Juzam Djinn, Oubliette, Sorceress Queen
Erg Raiders, Hasran Ogress, Khabal Ghoul, Stone-Throwing Devils.
Lands: Bazaar of Baghdad, City of Brass, Desert, Diamond Valley, Island of Wak-Wak, Library of Alexandria,. (Almost every land in the expansion).
Major: Ring of Ma'Ruf, City in a Bottle (it becomes a dead draw).
Minor: Brass Man, Dancing Scimiat, Alladin's Lamp, Jandor's Saddlebags.
Just here, I've named over half the cards in the expansion. This doesn't include the occasional shower like Flying Carpet or Jandor's Ring.
In fact, that list has 43 cards, all of them noticeably powerful (some of them outright iconic in the format). Serendib Efreet and Juzam are considered the best. Erhnam literally has two decks named after him in Magic's sorid past (erhnam and burn em, Erhmaggedon respectively).
Unlike it's two cousins, City is probably the strongest hate card in the format, hitting beat down strategies, combo pieces, and control decks evenly. In reality, against the right deck, it can be outright impossible to overcome, and that is just one, imagine your running your mono black control deck when bam! Goodbye Juzam and Oubliette. Blue/Red Aggro? Bye Flying Men, Unstable Mutation and Serendib!
Like running a deck based on Garfields wedding party? Well too bad!
So we've established it's powerful, so I'm going to attempt to examine the good that comes from this card, and the bad.
Deck Variety-City in a Bottle forces players to play a wide variety of cards in their decks, not just the best cards from the best expansion in the format.
Strong Hate- The card is an amazingly strong hate card, that can stop a variety of tactics as mentioned above.
It's limited--Its useless against cards not originally printed in AN's. So not every deck in the format it hurt by it.
It hurts budget players-This card is the reason I didn't build Mono-black aggro for the Winter Derby. I realized that it'd hurt the deck so strong I'd have no realistic way to play around it. Other cheap strategies get nerfed by this as well. Given the lax rules of cards in the States, it hurts even wider, including Chronicles Erhnam's, Revised Apes, ect.
Cheap-It's cheapness (in both relative price and in mana cost) means you always need to strategies against it, even if your opponent doesn't own it.
I'm not sure if the good outweights the bad, or vice versa, but it's in some ways a good thing the card exists, otherwise nothing would keep the format in check. I think it's a bigger issue in Swedish/European then in the states, simply due to the inclusion of FE.
So the question becomes, what do you do about the card:
The idea of restricting it to one per deck has come up, which actually hurts it, because you lose consistency with the card. It's the equivelent of restricting Gloom for the mono-white match up. However, the strength of this is it keeps the card in the pool, and while a total of 78 cards are hurt by this one, it's inconsistency at one makes it a much more interesting pull, and keeps it from being over oppressive.
Personally, since Old School is already an extremely limited, but largely casual format, that no card should be banned, not even this one. I understand Ante cards (man did I love Rebirth though), I disagree, but can begrudgenly agree with Shahrazzad. However, banning a card due to 'power' is both abhorrent to the ideal of the formats, and the history of the game itself. Banning it, isn't the answer.
Shutting it off:
In 94, Artifacts turned off when tapped. While this solution isn't as good as it seems (it would untap and turn back on), it does make some interesting answers for it, including Phyrexian Gremlins. However, this is mostly a temporary solution. It won't fully solve the issue, but it's a solution.
I hate Errata, I hate the Errata on Chaos Orb, I will hate if they errata Factory (and probably ignore it). Errata is never the solution.
I wish I had a consensus for the best solution. I know a recent survey said for it not to be banned, and a recent survey suggested it shouldn't be banned. Personally I feel a solution isn't necessary, and while extremely powerful, isn't that the most important thing of the format? I might not own power, but I wouldn't call for it's banning, and this is no different. I wouldn't call for the restricting of Factory because it can kill Kird Ape, nor Time Vault because it works with Twiddle, so why should this be any different?