I used to be one such student. I attended a large public university that had a great deal of "intellectual diversity." The majority of the students were average, in terms of their drive/motivation/intellect. However, there was also a numerically large minority that was just as talented and driven, as the students whom you would find in the Ivy Leagues.
Which is why companies like Google and Facebook still showed up to recruit at our college, every single year. Which is why elite post-grad programs like Stanford's recruited a lot of our graduates, every year. They wouldn't be interested in the average student at our college, but they were certainly interested in recruiting the top 10-20% of our student base.
With grade inflation though, if everyone's grades are bunched up together in the 3.8+ range, it becomes extremely hard to distinguish between the top students and the average students. And one unlucky bad grade is all it takes for a top student to suddenly seem like an average student. In such a world, without any reliable way to distinguish between the top students and the average students, companies like Google would not even bother showing up to recruit at public universities like ours, and would instead restrict themselves to selective universities like Stanford.
One of the most important roles of the university system, is to serve as engines for social mobility. "Even if you're born into an average family and attend an average public university, if you work really hard and get good grades, you can still get a post-graduate degree from an elite university, and get recruited into elite jobs." Grade inflation, or getting rid of grades entirely, may lead to equality of outcome within a university, but it's also going to severely weaken one of the most important mechanisms for social mobility.