Hi, we are not region 8 but my younger son will be competing Level 7 div 2 to start this year. Last year he competed level 6 div 2, while most of his teammates were div 1. Somewhere there is a long thread I started about a year ago because at the start of last season my son was not happy doing div 2 and that thread might be helpful to you. I will also say that at our gym I have never suspected the coaches of doing anything in any way detrimental to the progression of an individual gymnast in order to serve any team goal. And this is my older son's 7th season at this gym.
Here is what I have learned since then. Divisions are very new. This will be the second season they are being used. I think coaches in general are still trying to figure out how to best use divisions to best serve their gymnasts. Historically at our gym the HC has not required that the boys have most of the level bonuses in order to compete that level and we have always been reasonably competitive with that strategy (although never placing as high as the gyms that have a very strict high bonus requirement.)
So (it appears to me) that meant that the addition of divisions required our coches to change their strategy. And they did- but only with some of the boys like my son, and not with most of them. I do not want to go into specifics but basically last year I think our coach learned he should have had way more kids at least start off in Div 2 so he could get the lay of the land before deciding who might move up to div 1 to finish off the season. In other words he needed to learn how other gyms were using the levels and what it meant, especially when it came to qualifying for the State meet. So this year, most of the kids in compulsory levels 5-7 will be starting off as D2, and depending on how they do at the first few meets, he will decide who moves up to Div 1 and who does not. (I am not sure what he is doing with level 4.) Whether this is a better strategy or not remains to be seen, but going by what happened last season it makes sense.
It sounds like your son's coach used such a strategy last year and it turned out well for your son. So to me it makes sense the coach would use the same strategy. The variable is that no one knows for sure at this point how other gyms may have changed things up this year based on their experiences last year as far as who they have in what division.