Wow, it's cool to see some people actually putting abit of thought into this. I've got a bit of a twisted idea I've tossed around for a bit, too, for a particularly demented/tormented ninja.

The character would be kind of MPD because of the bloodline, but it would be a gradual thing, not a from-moment-to-moment thing. OK, so here's the deal.
The ninja would be able to use chakra to channel pain, be it physucal, mental, or whatever in between, into solidified chains of negative energy. This wouldn't take much chakra, and the chains would be nigh unbreakable. I imagine they'd be a pretty awesome color, too, I was thinking maybe the color of Sasuke's Chidori when he went to stage 2 (i think, with the long hair and weird wing things), where he and naruto clashed fillersengan-vs-chidori, it was all black and white and high contrast. Anyway, the character would be very angsty, bitter, depressed, and all around horribly pessimistic because of all the pain he'd saved up, maybe even give him a complex, one where he'd believe that for him to become truly powerful, he needed to suffer unending pain and torture, and channel it to his power. So he could even inflict pain upon himself with the goal in mind to use it later. Yeah, so he'd be depressing and masochistic, and build up all this negative sentiment to the point where he can harness its power into physical chains and unleash their power upon an enemy. The downside is, of course, the bloodline will have taken its toll in madness on the user, if they choose to hone its power, and all they know is power gained through pain, and i dont mean the rigors of training, I mean true pain as in possibly nearly-crippling pain, intentional mental anguish, etc. Not very healthy for the psyche at all. I mean, I wouldnt imagine this character being as psychotic as the shukaku-possessed early Gaara, at least, not in the same manner.
The other drawback would also bring into play his split personality tendencies. See, I imagine that the ninja who possesses this bloodline would be young, like the other students, and therefore not have a tight grasp on his abilities (similar to an underdeveloped sharingan, which aspires to evolve into the mangekyu (not sure on spelling there)) So, the young ninja doesn't know how to measure the release of his torment and chakra into his weapons, and as a result, must release it all at once. As a result, after the battle (or even just the attack), he would be a different person, as all of his pain has been purged and released, molded into a weapon and then dissipated. This may seem good on the surface, but the mindset lingers in the ninja that, in order to produce such a devastating attack, he must endure eterneties of pain, self torture would be his sick and twisted method of training. Almost like a truely cursed bloodline, as it's power would be terrifying, but at the cost of the users' emotional state, perhaps sanity, and also the sacrifice of their self esteem, as they constantly emotionally scar themselves to build power.

But yeah, the majority of the chains' power would come from emotional and mental pain, because if it derived mostly from physical pain, he would be nearly unstoppable. Plus, as I'm sure most of us are well aware, emotional pain hurts much, much more, anyway.

I like to think of this as a potentially dangerously powerful character, at a much greater cost than most people would pay. Would show an interesting new take on obsession with power; I think this kind of person would run deeper than even Sasuke's desire for power. Just something to think about; anyway, keep up with the awesome ideas, guys, I love reading them!