>So the problem doesn't seem to be the students but use of grading as a system of measuring the progress of students who are on a research-heavy track of study
It can be a tricky problem. In more academic fields, I think there's a tendency to not weight grades very heavily in graduate applications, instead focusing on undergraduate research, recommendations, connections to research in your department (obviously, a research group directly wanting a student, and having funding for one, is all but a guarantee of admission), and maybe courses taken. Unlike for undergraduate applications, you'll often have few enough applications after filtering out obviously-unsuitable applicants that you can have discussions about specific individuals, and there will often be enough information about them as individuals that you can make decisions based on that, rather than grades.
But at the same time, at least in the physics programs I was involved in, I got the sense that out of concern for grades potentially affecting futures or discouraging comfort with uncertainty and exploration, once classes were at a point where everyone was probably going to be going to graduate school, many ended up being de facto pass-fail: for the most part, everyone who showed a good understanding of the material would be given an A, and everyone who didn't would get a tap on the shoulder at some point and a suggestion that the professor would do whatever was necessary to let them drop (usually far past the ordinary drop deadline). I also recall that, for example, Kip Thorne simply refused to teach classes that were not pass-fail.
It can be a tricky problem. In more academic fields, I think there's a tendency to not weight grades very heavily in graduate applications, instead focusing on undergraduate research, recommendations, connections to research in your department (obviously, a research group directly wanting a student, and having funding for one, is all but a guarantee of admission), and maybe courses taken. Unlike for undergraduate applications, you'll often have few enough applications after filtering out obviously-unsuitable applicants that you can have discussions about specific individuals, and there will often be enough information about them as individuals that you can make decisions based on that, rather than grades.
But at the same time, at least in the physics programs I was involved in, I got the sense that out of concern for grades potentially affecting futures or discouraging comfort with uncertainty and exploration, once classes were at a point where everyone was probably going to be going to graduate school, many ended up being de facto pass-fail: for the most part, everyone who showed a good understanding of the material would be given an A, and everyone who didn't would get a tap on the shoulder at some point and a suggestion that the professor would do whatever was necessary to let them drop (usually far past the ordinary drop deadline). I also recall that, for example, Kip Thorne simply refused to teach classes that were not pass-fail.