Re: significance to testing/belt rank?
Inside our organization I can fairly accurately guess who's what rank, so it does say something meaningful about people's abilities, but only inside the organisation. We have a pretty clear grading syllabus with specific points that people should pay attention to at different grades, and in my experience preparing for a grading does seem to increase peoples skills. As to the question of ego - if sensei asks me to grade, to me the least "egoistic" thing to do is to do what I'm asked and not make too much of it either way.
I can see how if there were a lot of people grading who didn't seem to have the skills for that grade that would bother me, too. But in the end it's really none of my business, it's up to the teacher.