I did the selective test in year 6 and I was very lucky to have gotten into Baulkham Hills. I think selective schools are great. Everyone talks about competition in selective schools, and I think that in most cases, that is a very healthy thing.
In primary school, I was easily one of the best (not to gloat or anything ...). There was a small group of us doing advanced math work, while the teacher taught the rest of my class that 10/4 = 2.2 (What can I say? She wasn't a very good teacher.) I loved maths ever since I was little and in year 5 I beat all of the year 6's in the maths olympiad. I thought I was the best (slight exaggeration). I didn't have to try very hard at all.
So, it is with this mindset that I walked into year 7 at Baulkham Hills. I was pretty shocked. I hated my maths teacher, I got detentions often in maths, and for my first report card ever for my year 7 half-yearly, I got 64% in maths. I guess my first reaction to being thrown into a school with a bunch of amazingly smart people, was just to give up and my parents were disappointed in me. As a little year 7 kid, I didn't want to disappoint my parents, so I tried a LOT harder after half-yearlies, and I managed to bump my yearly mark up to somewhere in the 80's. So really, the competition really pushed me to do better.
They say the best games are very challenging, but seem do-able. They push us to play it over and over, try harder and harder, and do better and better until we defeat the huge boss monster at the end. I think that selective schools present exactly that. They challenge us, by placing us in an environment filled with amazingly smart people and you have to truly work your ass off to do the best you can, if you want to beat them all. At the same time, it's definitely do-able. YOU gained entry into that school just like every other kid - you're not just some dumb kid thrown into the mix. This is why smart people belong in selective schools. Now this may be mean, but by the same logic, it shows why people that aren't smart enough to gain entry, shouldn't go to selective schools. Unless you're exceptionally determined and have amazing motivation, being thrown in with crazily smart people that you feel you can never match, you'd ragequit (using that game analogy). I think the selective school system is effective here, in that from school rankings and preferences, etc., students tend to gain entry into schools that are similar to them in terms of academic strength. The very best students would generally be found at James Ruse, and then you get everyone else distributed down the rankings, until you run out of selective schools.
Summary : Selective schools help students reach their full potential.