In my opinion the "I'm not into rank" thing is a form of false humbleness that simply masks a reluctance to step up to the plate and take the risk and deal with the pressure of testing. In saying it's "no big deal" the student makes it a big deal and is avoiding it. I will occasionally let students slide on testing when I know they have a great deal of pressure in their lives outside the dojo. What they need at that time from their Aikido training isn't more pressure. But they know that at some point I expect them to get on with it.
"The Sensei knows how good someone is... why doesn't he just give the rank that reflects the skill?"
This reflects a lack of understanding about the function of testing. There is no competition in Aikido. One of the few times in your Aikido career that you will have to step up and put it all on the line is testing. The point isn't to recognize ability (although that is a result) but rather to get that individual to make a concerted effort beyond whatever his standard level of commitment is. Ability isn't the point, it is making the jump to a new level that is the whole point of testing.
We test during seminars and there will be dozens of people, including many heads of other dojos, attending. There's a lot of pressure not to get out there and look like a fool. Also, my students are quite aware that their performance reflects on the dojo and myself. My own teachers don't see me more than a couple three times a year at camps and seminars. The only real way they can judge what I am doing as a teacher at my dojo is by the students I am turning out. This puts even more pressure on the person testing. Since this is a martial art and not just a social club I consider that pressure to be quite valuable. Students find out quite a lot about themselves in the process preparation for and then the doing of the actual test.
I think that it is precisely this "finding out" that the anti-testing people are really avoiding. Having to face whatever stuff you have is not usually something people willingly go after.
It's been many years since I had to worry about testing. But last year I was invited to demo at the Aiki Expo. Getting up in front of seven hundred people, many of them teachers of various arts whom I highly respect, reminded me of what I had felt like when I was testing so many years ago. It had that "No more time for practice, no more second and third chances, just get out and do it now" feel that a martial encounter has. Any screw-up would be there for all to see, permanently as they were filming. It reminded me why the ritual of testing is important in the development of the kind of spirit that I am looking for in my students.
I am surprised at how many posters have said things along the lines of the Sensei shouldn't make you test, or that it should be up to you when you feel like doing it... One of the functions of a teacher is to encourage you to make those jumps that come with facing things you don't want to do.
Finally, testing has a social function within the dojo. No one can prepare for a test alone. When someone is getting ready to test the whole dojo community is involved. The beginners support the effort by being patient with the fact that for a bit of time they don't get quite the attention from the seniors as they are focusing on working with the test candidates. All of the candidate's peers and seniors have to step up to the plate and put in extra effort, sometimes within class and often after hours, to help him prepare. The energy of the whole dojo rises when testing is approaching. If the candidate(s) is doing his job he actually pulls the whole dojo up in his wake to a higher level of effort. The beginners see a wonderful example of focused training which can be quite inspirational for them.
I think that the arguments for testing far outweigh the arguments against both for the individual and the dojo as a whole. I think those folks who have a "button" which they ought to look at in an honest fashion.