I've been to Malaysia three times: once to Penang and twice to Kuala Lumpur. I mostly used taxis to get around, and I found that drivers always wanted to negotiate a fare up-front (which was much higher than a meter fare). Sometimes I could argue them into using the meter, but a few times (such as heading back from the KL zoo), they simply wouldn't take me unless I agreed to a flat rate.
At first, I thought they were scamming me for being a tourist. What I've heard, though, is that the law sets meter rates that are too low for the drivers to make a living, so going by the meter is simply not worth their time. I have no way of verifying that, though, and my gut reaction when someone tries to do this is that they're running a scam (this is the case in Thailand, where I was living at the time).
I'm thinking of Penang again next year. Does anyone have experience with this situation, and can you verify the cause? How trustworthy are drivers in KL and Penang in negotiating an honest fare, provided I don't let myself seem like an easy mark?
Edit: Just to clarify, I don't really have a problem paying drivers something they can live on; I just don't want to overpay/get swindled.