Grades become the reason for attending class and doing assignments and studying for test.
It is no longer about learning for learning sake. You do not read a book for knowledge as much if it is a requirement for a grade. In most situations, I think grades are necessary to foster learning, because most people need external stimulus for motivation. There are always exceptions to every rule, but for the most part my answer is yes. However if they are obvious about activities that are already of high interest than the interest may be lost in the competitiveness for rewards.