Rich, what I'm saying is that kids, regardless of intelligence, do not uniformly give a shit about their grades. With some exceptions, they mostly do not have a long-term vision of the value of the grades, but to the extent they do try to achieve good grades, they value them mainly for expressions of love and approval they get in return, not because of any objective life value the grades might bring them.
Kids do not see the world as adults see it at all, and school is in a lot of ways life-with-training-wheels, viewing it as do-or-die dog-eat-dog is just as much a recipe disappointment as no-fail. The no-fail stuff is a somewhat-poorly-thought-through attempt by educators to cope with this, and cram some kind of knowledge into the large percentage of them that are simply not motivated by grades. I don't think it's a great idea myself, but I can see where they're coming from on it.