I think we should have a mixed system, with some elected members and some nominated, as at present.
Looking at the quality of our elected MPs I think it would be foolish to depend on the electorate to always make wise and informed choices. I think that some very worthwhile people might be passed over because they don't have electoral appeal.
I would place conditions on political nominees, though. Restrict the number of peerages which can be nominated at any one time, put a lower age limit on nominees and require that they have a credible history of distinguished service to the UK.
I'd do away with the hereditaries altogether unless they were prepared to permanently renounce their peerages (i.e make them non inheritable) and also had a record of distinguished service.