I didn't know there was a hard cap on crit. That's interesting if true. Even with terrible gear, and one shammy specced resto, the others are still at 40% crit with LB & CL. So if there is a cap, this might affect some gear decisions.

Aside from a possible cap, there is no diminishing returns to crit. However, you need to keep in mind that crit, damage and hit are all related. If you have zero damage, crit is worthless. On the other hand, crit has some benefits beyond just damage; those elemental focus procs are pretty awesome.

I think the best approach is not to worry about it too much. If you're raiding (not just heroics), the 16% hit is more valuable than anything else. But once you're at that point, just balance your damage and crit more or less equally. If two items are almost identical, go for the damage. But never give up a lot of crit for a little bit of damage, or vice-versa.