[rosser]

This doesn't solve the key distribution problem at all:

To start off, both Alice and Bob must have their own slabs of diffusing glass and must physically meet to create a key for encoding a message later.

Like any other OTP system, key distribution — ensuring that the parties who wish to communicate securely have a shared secret (or secrets in the case of OTP; the whole point of OTP is that a key is only used once) — is the weak point. Unlike many other OTP systems, this one requires a physical meeting, which, depending on your use-case for needing crypto in the first place, may be impossible, or deadly dangerous.

At best, this complicates key compromise.

EDIT: clarifying language.

[_red]

Correct, I can't see the practical use of this.

If Alice and Bob must have a secure method to jointly compute K(A) ⊕ K(B), then why wouldn't then use that same method to just exchange the data?

[dsr_]

At the time of their key-exchange meeting, they don't know what messages they will want to exchange later.