I think you've nailed it.

Prospects, if they can overcome the flattery of being offered a title beyond their skill and experience, should actually recognize such as a warning sign. After all, a company willing to do such a thing is likely a place full of stupid and inflexible policies where HR has too much power.

Sorry you have to play such games to get decent talent, but beware a nasty side effect: your actual senior engineers are going to need new titles to reflect the peer group they actually belong to. They may be (and perhaps rightly so) insulted by the insinuation that a new graduate is equally valuable to the company.