What exactly is meant by "This is not to say it's not a bad system"?

Solution 1:

You are correct in that the two negatives roughly cancel each other out. Literally speaking, though, what it means is the speaker is not about to "say" (i.e. voice his/her opinion) that "it is not a bad system".

Specifically this likely relates to a comment made immediately prior. Such as for example, the system having some admirable quality. In the opinion of the speaker, such an admirable quality apparently does not make up for the other potential failings of the system.

The speaker is not directly saying it's a bad system, but is saying that he/she is not saying it's a good system. E.g. "Don't mistake my previous statement for implying this is a good system."

Update: Upon reading the given context, it does appear the speaker meant to say "this is not to say it's a bad system", and it was just a mistake.