I'd prefer the nonpsionic version in MM2 and Shining South. It still has 2 HD, but only gets a +1 LA compared to the XPH version's +2 LA. That makes it quite a bit more playable, and all you lose out on are the psi-like abilities and racial powerpoints.

As far as how balanced the race is, even if you use the lower ECL nonpsionic version, you'll be pigeonholed into one of the weaker classes. It's at least three levels behind if you go with a primary spellcaster, and everyone should know nonspellcasters are underpowered as it is. As a martial adept it could be useful, but you'd lose out on all those arms using standard action maneuvers. I'd probably go with either dual-wielding two-handed weapons with Oversized TWF and Xing Mongoose, or make a Soulbow with a dip in Monk or Swordsage and Zen Archery, using Multiweapon Fighting with Mind Arrows.

Improved and Greater Multiweapon Fighting are not overpowered. This is especially true considering they require a +9 and +15 BAB respectively, compared to the +6 and +11 required by Improved and Greater TWF.