Yes, there are several flaws in your reasoning. First, your PPM is off. Special ability hits and haste increase PPM, and hit rating below white cap decreases PPM. PPM for 1h will probably be from about 6 to 7 depending on gear.

Second, the math just doesn't work. To make things easier, calculations should be done without factoring in the DKs personal crit percentage, as this isn't really relevant if you are just looking for percents. This could be done the way you have it set up, but it gets a lot more complicated and you would have to look at logs and find out how much obliterate and frost strike are actually hitting for, their damage percentage, etc.

This is how it makes more sense to me

Profile used: Simulationcraft Results (Simulationcraft 372 BIS with my modified action list; this profile is far from BIS for 1h frost anymore, but I'll get to that later)

Note: Including the damage was not necessary for calculations, it is just there for perspective
Total damage = ~9.3 million
9.1 sec interval on killing machine (rounded to 10) = ~40 killing machine procs over the 400 second fight
Obliterate = ~30% of damage (57k crit, 27.5k hit) with 74 uses over 400 seconds
Frost Strike = ~25% of damage (33.7k crit, 16.4k hit) with 108 uses over 400 seconds
Estimate – 20 KM procs used on both Obliterate and Frost Strike; 20/74 = 27% & 20/108= 18.6%
Obliterate – (27%*30%*9.3mil) = 8.1% or 753k damage
Frost Strike – (18.6%*25%*9.3mil) = 4.7% or 473k damage
8.1% + 4.7% = ~13% of the time crit rating is not effecting our damage in any way
This means we are benefiting from crit rating 87% * 1.03% = ~90% (1.03% is from 3% crit damage meta). This only applies to this specific encounter with this gear. This will vary from playstyle, gear, and spec, but is should be roughly around that mark for most people.

Now, that might make you think that crit is automatically better, but I wouldn't be so sure. First, the percentage of frost damage dealt each fight will vary greatly from fight to fight and from player to player. The fact is, in every single raid encounter except for Chimaeron and Atramedes, you will be dealing some form of AoE frost damage (or you should be). However, only Chimaeron would really count as a single target because when Atramedes takes off, you should still be using howling blast and have dots ticking. This means that on every fight except for Chimaeron (if you are playing right), your actual value of mastery should be from ~2%-40% (extreme AoE fights) higher.

For example, on V&T most DKs probably don't keep dots rolling on both dragons (one on ground, one in air), which not only increases DPS, but also increases the value of mastery. In my most recent V&T kill, frost was over 45% of my damage...and this is as 2H with under 1k mastery.
Most recent V&T kill: World of Logs - Real Time Raid Analysis
Most recent Nef kill: World of Logs - Real Time Raid Analysis over 45% of damage is frost as well

For both of those kills my stat priority was haste > crit = mastery with a 358 ilvl. I generally switch Impatience of Youth (mastery) for Fury of Angerforge (crit) depending on the level of AoE (I think I was using crit for both those fights). I was running with ~1450 haste, ~900 crit, ~900 mastery.

Obviously, everything I am saying pretty much goes against the general consensus on DK. I sim 2h frost and 2h unholy at almost identical levels at 359 and both specs benefit by far the most from haste. UP scales better with haste, so with enough haste (well above 359) it will become the clear choice; so for the vast majority of raiders, stacking haste in FP for 2H is the way to go.

Scale factors on my own 358 profile:

Simulationcraft Results 1H

Hit to spell hit cap: 1.04 (every 1H DK should be getting 10% hit)
Crit: 0.82
Haste: 1.00
Mastery: 0.725

Simulationcraft Results 2H
Crit: 0.73
Haste: 0.78
Mastery: 0.696

(Just because the factors are lower for 2H than for 1H means very little, as increasing one stat effects others. This just means you get a higher value for hit and expertise as 2H FP as you are more GCD constrained than 1h frost.)

I simmed it with my mastery trinket on. My single target would increase with the crit trinket. However, the more I look into the numbers the more convinced I am that AoE frost damage on most raid fights is a lot higher than most would expect. So, even though mastery scales slightly slower than crit (very close for 2H, surprisingly frost does less % damage for 1h and is a bit weaker), if you are properly rolling dots (like you can on 11/12 raid fights) then mastery is likely to overtake it, especially with how close the stats are for 2H. It's a bit more of a tossup with 1H - I really don't believe you will be gimping yourself by stacking mastery over crit (as long as haste is first priority) though as they should be close. And, I hope it goes without saying that on a more intensive AoE fight like Halfus, Magmaw, or Maloriak, mastery wins by a mile. One final note as well; in the simulator switching stances is still consuming a rune, so this will increase the damage further for both of my specs, as they both involve swapping during bloodlust. Human players can again increase DPS even further in actual practice doing this by being intelligent about dumping RP right before and after bloodlust (I have it set up to do this to some extent, but a player could be far more efficient).

It doesn’t seem to me like relative increases are, well…relevant.

Sample – 90% damage modifier for crit due to KM

0 mastery / 0 crit – 10,000 damage hit every second that is 60% physical and 40% frost
50 mastery / 0 crit – 14,000
0 mastery / 50 crit – 14,500
25 mastery / 25 crit = 14,700
30 mastery / 20 crit = 14,632
20 mastery / 30 crit = 14,732
10 mastery / 10 crit = 11,772
5 mastery / 15 crit = 11,804
15 mastery / 5 crit = 11,704

Now, I did this with the fairly modest estimate of 40% of damage being frost. If I did this to my actual values of frost being around 45-46%, mastery would be ahead in relative increases. Even as it stands now, take a look at the change of adding 5 crit and subtracting 5 mastery from the 10 mastery / 10 crit sample (which would be an extremely large gear shift for a player and those values are far more reflective of attainable numbers than the 50 range). The total DPS change is less than .3%. Yes, things change as values increase or decrease, but in the end all that matters is absolute DPS increases – and even still, the relative increases are VERY close at lower gear levels.

The whole idea of relativity of stats seems meaningless because there are so many other stats that will also be affecting things. For example, if a 1H frost player is not spell hit capped (but is melee capped), mastery will get less benefit. Haste and strength also will change how values scale off each other, as will trinkets, talents, and even spells like PoF. Calculating exactly how haste will benefit you is difficult to say the least without a simulator. I just don’t think comparing two stats without factoring in every other possible stat and ability is accurate. Sure, crit may appear to scale very slightly better than mastery at the lower gear levels, but are you absolutely positive that haste/hit/expertise are scaling exactly the same with each of those stats? I know I’m not. It can get extremely complicated, and sometimes even changing the priority list would be necessary to properly capitalize on changed stats.

So, I’m still sticking with haste > mastery = crit, with a favoring of mastery on most fights depending on level of AoE, and slight crit favoring if it is almost pure tank and spank. I really don't think players will notice changes in single target DPS when switching from crit to mastery or the other way around, as they should be very close (if haste is maximized at least).

I think you might be focusing a little too much on trying to simplify things, Xbit. I just don't think it can be broken down that easily. Unfortunately for us, stats aren't all nice and simple to calculate anymore like it was a few years ago when there was no haste, mastery, or expertise. There's three ways you can figure out these things out: simulator, logs, target dummy. No one way is enough. I've been re-forging or re-speccing almost every raid so I can compare numbers to the simulator and dummies, and these are the conclusions I have come to for my gear level. I would imagine it would be similar for people close to ilvl 359, but it is really impossible to say as playstyle, raid makeup, etc. will also be major factors in determining your own personal most efficient stats.

It seems the DW frost talent spec stated is 5man specific than raid.
Missing chilbrains talent which is essential to slow the adds for cata raid.

Searched around but can't find raid specific for DW frost talent spec.

Chillblains isn't essential and in fact can be quite frustrating if you don't want to slow adds. To me, having chillblains in my spec means I'm serving a very specific purpose, the one of kiting adds. This likely means I don't need to worry about my DPS output. I think the easiest swap is 2 points from Chill of the Grave to Chillblains when necessary, but I never leave chillblains in my spec permanently.

One of the few things Frost brings to raids at the moment is their great utility. I'm talking about dependable interrupts in Mind Freeze(Endless Winter) and Chilblains specifically. If your sole function is min/maxing your dps then you should think seriously about going Unholy. This is in conjunction with 25 man raiding where other classes can fill the important roles.

However, 10 mans is where Frost really shines. Currently, Frost brings some of the lowest dps compared to other classes. But it's Frost's utility that allows players to keep their raid positions in some cases. There is no reason to not have Chilblains talented in all Frost builds at this point in time unless you use both of your available builds for dps only.

And you never want to remove points from Chill of the Grave. That would be a huge dps loss no matter what situation we are talking about.

Chilblains is a near must-have in 10-man at least in my opinion. My raid doesn't have a mage and I'm often called to aoe-snare stuff on for example Nef or Magmaw, not to mention Frost has some of the best aoe burst still which is very good in Cata raids.

Basically I agree with what Clash said, and as I have always liked 2h frost it's my chosen second spec that I bring for specific fights, or simply if we need the icy talons. I still bring another dps spec or tank spec as needed in the other. And I can also see it as weaker in 25, where it's a lot easier to have available many characters with all needed skills and abilities for the 'new' style of raiding, where things such as snares and interrupts are more a rule than an exception.

Personally I drop imp Frost presence (2h frost); The improved runic generation is just not needed for me in UP, and I've also not experienced a need to get the extra 5% damage when AoEing. But those 2 points is pretty easy to get for a minimal dps sacrifice, just it's right you shouldn't get them from Chill

I do believe it's a smaller dps loss if you take 2 points from Epidemic or Butchery than taking them from Improved Frost Presence.

Fr 10m agree that chillbrains is a must
As for 25m I would go for morbidity for more aoe dmg

Dont really think on a pale horse is useful in a raid

I really question myself why the last posts won't get deleted. In my opinion discussing if or if not specing chillbains makes sense is quite absurd in times of secondary specs and respec options.

If your sole function is min/maxing your dps then you should think seriously which spec is best suited for which fight. Sorry but there isn't any "generally best spec" anymore til 4.2 unless they are changing unholy in adition to frost.

Does anyone have some info, of which will be strongest after 4.1 DW or 2H? I assume Frost will be better than Unholy.

I'm curious where you are getting your information Deris. Zenwhoa has shown simcraft results where 2h frost on the PTR is doing up to 3k more dps than 2h unholy. Granted frost suffers from more dps loss with movement fights, however with the buffs to Blood of the North, HB and FS damage whilst unholy receives no buffs I think most of the evidence is pointing to Frost being superior, 2H Frost being the top simmed result. Currently on live, I'll agree that 2H unholy is ahead by a slight margin (that widens with RNG, more movement fights etc); however, unless you have some strong evidence to suggest otherwise I believe that come 4.1 Frost > Unholy.

Personally I tank the majority of the fights; however I do dps the single tank fights and have switched my offspec to 2H frost just so I can get the execution down of rotation/priority system in light of what I'm seeing on the PTR.