Has any other kingdom of Germany (Württemberg, Hanover, Saxony, Prussia) had a situation like this? Such a thing was possible in Bavaria precisely because titles and styles were unlimited in dynastic male lines. Otherwise, had British, Danish, or Russian rules applied (meaning restrictions, with the princely title and qualifying rank of Royal Highness limited only to those close in the succession or closely descended from sovereigns), then NO great-grandchild of King Ludwig I -- even if in the dynastic male line -- would have been born a Prince(ss) of Bavaria, with the style of HRH. After all, neither of the two "mad" kings (Ludwig II, Otto) ever married or had any children. As they had no other brother, there was no hypothetical third son through whom their father (King Maximilian II) might have had grandchildren. In fact, there would be no children or grandchildren through son of a king in that generation of Wittelsbachs until the accession in 1913 of the self-proclaimed Ludwig III.
Perhaps it was poetic justice that German rules applied, since the two sons of King Maximilian II, between them, failed to produce a single heir to the throne. So it was up to their cousins to secure the dynastic continuation by doing just that: in a sense, they married and had the children the "mad" kings could/would not have. As it was, the royal succession survived through the descendants of their uncles (the younger sons of their grandfather).
The Bavarian royal court, then, does not appear to have been an overly crowded one, teeming with a surplus of princes and princesses, since the only Wittelsbachs in the third generation of descent from King Ludwig I who had the full titles and styles were the "mad" kings' first cousins, once removed.