I have argued that individuals, if they want to be competitive, have that ability by going to RTC's and clubs. I still believe that. I also realize, as a state, we would like the sport to grow. When kids have success they stay with the sport more often, but not always. Do you water down the state finals by classing it? Maybe temporarily, but as a result, the sport would grow.
If the kids placing and winning a state title are from the top half anyway, they only part that would be watered down would be your lower classes. Those small schools, as a result having wrestlers place and win a state title, would certainly create a buzz around their community making recruiting kids into your program easier.
I hate the idea of every kid getting a medal as if it was a little league, but that wouldn't be the case. We have 300+ schools, instead of 8 per weight class, it might be 16 or 24.... still far from everyone getting a medal.