Max,
I think you've posed some good questions, and I should probably
work out a more thoughtful response before running to class.
 
Okay, I'll open up w/ one reason for teaching grammar: it enhances
students' ability to think about language, and--in both theory
& empirical research--there's good reason to belive that
metalinguistic awareness enhances people's ability to learn
a language, talk about revision decisions, consider stylistic
options, or simply think about the slippery nature of language.
 
Of course there are other ways of having students think about
language--sociolinguistic field-research for instance.  But
I see grammar study not simply as a tool forhelping students
deal with 'error' or doing other types of linguistic inquiry.
In & of itself, grammar study can promote thought.  The fact
that some students--such as the one you quoted--was confused
by grammar study or diagramming doesn't necessarily mean
that the problem is w/ grammar study.  I know that I've used
diagramming in ways that have prompted the exact opposite
sort of response from the aforementioned student. At other times,
when I've neglected to go beyond the plug-and-chug of
diagramming or when students simply didn't seem to be engaged
for whatever reason, my students have reacted much like the
stuent whom you quoted.
 
In short, grammar study can be a method of inquiry about language,
at its best anyway.  I agree it may not be altogether functional
& useful at times, but neither are many types of, say, math
useful to students--math such as calculus or trig.  I've been
pushing for more math at my school in fact despite the
objections from some teachers that most students don't need
to know such higher forms of math.  I argue that math--like
grammar--allows students to exercise certain types of thinking
and even different types of viewing the world.
 
I've gone on too long.  Hope some of this makes sense, and
thanks for posing the important questions!
 
larry beason