That's actually a really interesting point. Probably worthy of its own thread.
That being said, I don't think it does. Take the 3.3/170 Harvard kid and send him to FSU. He will get a 3.8 hands down. You can argue with this and I see the other side, I just don't buy it. My fiancee's father teaches at UGA and he goes on and on about how there are so many absolutely subpar students there. While some are intelligent, by and large he is extremely disappointed by the quality of student. I bet you won't get statements like that at Harvard.
I do not think the Harvard kid would get a 3.8 at FSU. 3.5 maybe.
Undergrad is mostly effort.
Yes and No. It really depends on where you go and what you study. I took several curved classes. Not as harsh as LS but nonetheless curved, which takes mere "effort" out of the equation. I wasn't alone, I know the undergrads that are in Emory's b-school are on a fairly strict curve as well.
Curved classes do not take effort out of the equation. In fact many times it makes it worse. I had Harvard level numbers in high school, my LSAT is significantly higher than Harvard averages and yet at my state school I got blown out of the water because I was lazy. And I was taking a very technical major, one of the kind where intelligence is actually a big benefit.
I'd take the 3.3 MIT EE, over the FSU 3.8, but in topics like history or poli sci, the grade is mostly effort once you get over the minimum intellectual requirements to understand the material.
However I am a lot less impressed as the GPA at these schools gets lower. I'd be more impressed by Harvard 3.0 than I would a FSU 3.3.
But there are many good students at the top of every state school for a variety of reasons.