Let me play Devil's Advocate on grade inflation at Harvard and other Ivy Leagues. Harvard is so selective that only the best of the best have a hope of getting in. So why would you handicap the best of the best with respect to community colleges and give them bad GPAs? They are *all* A-class students, right? So why not give them all A's?
Second: what's so inherently wrong with the idea of learning without pressure? Who might be more qualified than the best of the best to do that? I.e., those who can get into the Ivies? This also reduces the incentive to cheat, and might create a collaborative environment rather than a cut throat one.
Were I a Harvard professor, I might do this: everyone gets A's and B's at worst, but rank people within the class and never share that internal ranking out of the class. That way, students get REAL feedback, know where they stand relative to each other, and have some incentive, but if they screw up relatively to the other awesome people in there, they don't get branded with a B or a C (or worse). I'd also focus in delivering frank and very critical assessments to these students to help the best become better. But the externally seen grades? Yeah, I'd inflate 'em.
As to "lack of quality", when you have such a grade of material incoming, I doubt that most anyone else will notice a 'lack of quality' in the product. Being lucky enough to be born smart is just such an advantage it's really hard to screw that up.