Apparently this would damage their little psyches and make them sad. Or perhaps by providing multiple grades stating how much the student has learned compared to others, and how much compared to their own, past, performance. I do really feel the way school handles it now is very damaging. Students figure out that they're being passed without trying, and they also figure out that what the teacher's say isn't the truth. Personally, my heart goes out to the thousands of gifted students who are forced to sit through tens of thousands of hours of education geared at half their level.
School is actually in the way of their learning and growth.
Unfortunately, average to below average intelligence teachers haven't learned how to deal with these students and feel that if the students are different, and acting out, they must be stupid and should be punished. To understand the severity of this problem, here's some personal proof. Four years before I was in the statewide math contest, I was put into the math group for slow students. AND, after that, but before I got degrees in mechanical engineering and computer science, I was getting Ds in math in high school. Finally, during my entire junior high career, I was put into special education classes because I didn't get along with other students.