So here is my question. What does it mean to be "successful"? Or "competitive?" Presumably it is something between "that kid is going to kill himself if he tries to throw a Level 9 vault" and "Consistently placing in top 3 AA." But where is the line, exactly? I am honestly asking. I realize this is something each gym/coach/gymnast decides for themselves, but what do you think? No matter how good the kids in a level are, someone always comes in last. Is the kid who comes in last by definition not successful and not "competitive?" What if he does not care that he came in last?
I think you answered your own question here, as to me, that is what the different options (Xcel, D1/2, JD, JO, JE) are designed for - personal choice - because there is no one 'line' that defines success to each athlete at each point in his career.
I don't find this much different than, say, soccer or basketball, where there are multiple league choices from very recreational to super competitive. A kid can select up or down to find where he feels is the sweet spot of feeling both successful and challenged, and therefore, is having the most fun.
Another thing, with boys even more than girls, is the high variance in which they mature and gain focus and body control (at the younger ages) and musculature (at the older ages). A 6-8 year old boy just starting out, especially if he is more slow-maturing, can have his bubble burst really fast by being forced into D1. Even if he's not 'medaling' in D2, the pool of kids will seem 'more like me' - enforcing the notion of 'I belong in this sport.'
I do see your concern, though, if coaches/gyms are 'tracking' boys too early into what is seen as 'lesser' and therefore actually impeding their progress and cutting off their ability to enter into JO later. I haven't seen this personally, yet - the main reason being that D1/2 all still practice together with the same coaches in most gyms (? chime in if not true of anyone's gym - if D2 kids are tracked to less skilled coaches anywhere?), and so boys are still progressing at their own ideal pace. Then at the JD level, they may or may not be working with the JO boys, but are all still working optional skills, and so those who want more are naturally working harder and selecting into JO when ready, where those who are only coming part of the time, or goofing off somewhat (taking a more recreational view of class), are naturally self-selecting to continue JD (which is fine).
So as long as boys who WANT to progress are getting opportunities for good coaching, the D2/JD track, imo, is a wonderful system.
If any programs/coaches are limiting opportunities because of 'success' (in their definition) at age 8, then there becomes a problem.
ETA: in case not clear, my viewpoint is colored by my experience seeing D1/2 and JD/JO/JE being very open and fluid with boys moving between these categories. So less as 'tracks' and more as simply 'divisions' that a boy is ready for at any particular point in time - a season, or partial season. I am seeing a lot of movement in other words, rather than any kind of 'track'.