I have just picked up on this thread and probably haven't read it carefully enough, but there are a couple of points I'd like to make.

Not sure about exams as such, however,it is possible to be assessed in other more realistic and less threatening ways, through observation and portfolio as in NVQ,(National Vocational Qualifications), or OCN(Open College Network). I have witnessed the power of a recognised achievement on the self esteem, to say nothing of future prospects, of people who had previously thought they were not capable of participating in further learning. With the correct support, everyone is capable of achieving at an appropriate level.

Also, as a member of both EFDSS and Comhaltas, and with several years experience as the parent of a competitive Irish dancer, I decided to study the issue of competitions in traditional music, song and dance for my MA dissertation.
My view is that competition in itself is a natural element of human behaviour, and is a motivating force for many. Also, standards are improved, and innovation within the boundaries takes place. If it becomes too restrictive it stultifies development, and I know this is one of the criticisms of Comhaltas - one that I do not entirely agree with, however.
What is important,I believe, is that the competitions are only a part of a wider group of activities, where the skills gained in the competitions not only have an outlet, but a social function. You only have to witness the sessions at a Fleadh, (from regional to All Ireland level) where youngsters who have been competing,their teachers and adjudicators, along with other musicians of all ages and standards, meet and play together, to realise that there is a lot to be gained.
The Irish dancing scene, however, is mainly focused on competions, and has produces a very stylised form of dance. It is governed, not by Comhaltas, as has been implied, but by two other organisations, the most significant being An Coimisiun le Rinci Gaelacha. My perception from involvement in Irish dancing competitions and Comhaltas is that there is very little communication between the two organisations, certainly in England. The main effect of this is that there are dancers who compete, and ex dancers, who don't! The social occasions for using skills are not there, and I have experienced 'champion'dancers who could not dance to live music at a session because they are only used to dancing to very strict tempo playing(mostly from CD)
This is a very long post, for which I apologise, but I wanted to contribute to a fascinating thread.