In trying to set reasonable limits on a PC's usage of the polymorph chain of spells. Is it plausible to require that the PC have some form of interaction with the target creature? Or can a PC polymorph into a creature that the PC has only heard about? Or read about in a book? Or seen just a painting of? From a solid role-playing standpoint, it seems reasonable to require that a) the creature exists in the multi-verse that the DM is running, and B) the PC has some knowledge of the creature. What is the minimum "knowledge" that the PC must have in order to polymorph into such creature?
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In my opinion, you should at least have encountered the creature before to polymorph into it. You might even have to examine a body. Reading about it in a book or rolling Knowledge should only let you recognize it.
Polymorph Effects Are Dangerous
It is a very good idea to limit them. At the extreme, changing into a Sarrukh from Serpent Kingdoms while using Assume Supernatural Ability (Savage Species) or shapechange is the opening gambit for becoming Pun-pun, a character with +Yes to everything and every ability ever published (and arguably abilities not published, as well).
So you definitely want to limit them somehow.
This Rule is Not Enough
If you implement this rule, you will now have to second-guess every monster you ever use. You’ll probably never use a Sarrukh, but you might use, say, a Dire Tortoise (Sandstorm). A smart Wizard or Druid will see that, and from then on get to act in every Surprise Round ever – even if there wouldn’t otherwise be a Surprise Round. You can, of course, nerf the Dire Tortoise, but a lot of players will cry foul if you do that after you used it.
Two Real Solutions
Trust Your Players
This is the simple one. You don’t even need to add your houserule if you just trust your players. I’d really strongly suggest that, if you cannot trust your players, your group has bigger problems than Polymorph. Make it clear to all players that Polymorphing is something very dangerously powerful, and you will not appreciate it if players use it to break the game. That should be enough for most players to keep things reasonable.
Thematically, you may want certain limits, but you don’t have to say it’s specifically having encountered the animal. It seems thematically appropriate for a Wizard to be able to take the forms of animals he’s studied in intimate detail. And it’s also fair for a Druid to include encounters with a variety of animals in his backstory, and you could argue that Nature/the spirits of animals themselves are lending him their forms, even creatures he’s never met. It depends on how magic works in your setting.
Ban Open-Ended Polymorph Effects Altogether
Replace the Druid’s Wild Shape with Shapeshifting from Player’s Handbook II. Ban alter self, polymorph, polymorph any object, and shapechange. Use the spells from the [Polymorph] subschool introduced in Player’s Handbook II – unlike e.g. polymorph, those spells each have a single form you can take.
Alternatively, you might consider a spell that is like wild shape I that lets you turn into a creature from the summon nature’s ally I list, or a polymorph III that lets you get creatures from summon monster III. Those lists are rather limited and should prevent the greatest abuses. In fact, they may be too weak – consider having wild shape I use the summon nature’s ally II list, and polymorph I might even use summon monster III – the Celestial and Fiendish templates really do very little for a player character, since the main draw is the Intelligence bonus. I have not actually looked at the lists, though. Ideally, really, you’d create all-new lists that are tailored to each level.
Yes, it is plausible to restrict polymorph to creatures that the players have encountered. This is one of the commonly discussed polymorph house-rule.
I think the minimum knowledge would be determined by a knowledge skill check for that monster. If the monster does not exist in your multi-verse this check would be impossible to complete. Basic knowledge of a monster starts at 10+HD, but I would extend this to be 10+HD+X, where X is creature dependent (maybe based on the number of special abilities the creature has).
I've taken to a risk v reward method for Polymorph. I make only one simple alteration. If you nat-1 on a Polymorph, you accidentally summon whatever you were trying to alter yourself or others into.
Nice and tidy, it deters anyone from doing anything too terrible or dangerous and is rare enough that occasional massive risk can result in great fortune. It retains the power of the spell, while preventing it from being abused.
A potential addition that I considered but didn't include was increasing the failure rate for monsters that the player hasn't encountered before or hasn't passed a knowledge test to know about. That could work, but the risk of accidentally making the battle unwinnable seems to be enough for my players.
Once I used a table based on the teleport tagert table, it was something like it:
With fails/wrong monster I would jut choose some monster or animal visually resembling the monster but very weak, or totally opposed thing, "So, let me see, you turned into a... Giraffe..."...
A weak version could be the same monster, but without power, or attributes modifies reduced, like instead of +8 in Str, you get +2, etc..
You could fine tune the checks using the CR of the target and the caster level of the character
I recommend handling polymorph spells the following way: The player casts polymorph, wildshape, etc and tells the table what he's turning into. If anyone at the table then exclaims any of the following phrases: 'What?!', 'The hell book is that from?', '', 'That's (ridiculous/retarded/stupid/a travesty)', 'Quit being a douche', or 'Nuh-uh', then the casting fails and he gets to try again next round.
The best solution for all player problems isn't codifying a rule base to eliminate abuse, it's making it immediately clear that Player X's shenanigans are making the other people at the table have less fun.