I do personally feel that knowing how one is doing relative to their peers is important. Why? Because in life you want to do BETTER than your peers! Everything that matters in life is based on competition. (OK, not everything ... everything that isn't the subject of a Beatles song or 50.) Competition is the basis for earning scholarships, jobs, promotions etc. You've got to be better than the next guy to get ahead, it's just a (somewhat sad) fact of life.
Knowing that you are "setting the curve" is a good feeling. It lets you know that you're doing a good job, and that you're doing it better than everyone else. In the later grades, it lets you know you're likely to get into better schools than the average Joe. In college running at the head of your class is a pretty good indication of how likely you are to get the best job upon graduation (or any at all).
If you're not one of those kids setting the curve, don't kid yourself into thinking you'll end up better off than those who do. You won't get the scholarship, job or promotion ... they will. (Statistically controlling for character defects and nepotism of course.)
Letting our kids pretend they aren't in FIERCE competition with everyone around them isn't doing them any favors. Sure it may extend childhood a bit which is nice, but life will bitchslap them later on.
I'll be raising my daughter and son that's on the way to know that Johnny So-and-so did better than them on the test because they worked harder. That they lost the game because the other team practiced harder. That if they want to win next time they need to work harder. If they don't want to put in the effort they can't expect the rewards. It actually makes me quite sad, because it would be easier and more fun to just smile and say they're special and unique and blah blah blah ... but that won't prepare them for life.