I have been coaching a long time, and you can coach these talented kids to compete and do well in compulsories with great skills and minimal time spent on the routines. I know this for sure bc I have done it. I DO think its important for kids to learn the little things (hand placement, dance, etc) are important at an early age, and it doesn't take a lot of time to teach that concept.
I have some great kids who will do well w/ Tops this year (skill wise) and were Level 5 + 6's last year. They would do 3 compulsory routines (on beam, lets say)-then they worked their upgrades-back & front walkovers, back handspring, back tucks, switch leaps, etc. They could NOT move on if their routines were sloppy, so they did 3 great routines! They all either won states or were 2nd- so it is possible to have them compete with their friends and "train up". (and we don't do a lot of hours either!) I could skip them a level (they have the skills) but I am not going to. We are going to do every level and they will still be very young, strong optionals with great basics & form when they get there, with plenty of time to do HOPES & elite if thats the direction we choose.
I DO think its essential for kids to compete if they train in a group of kids that are competing. Its SO hard for those kids to stay motivated LONG TERM when their friends in their group are going to invitationals, getting goody bags, swimming in the hotel pool together- and then the 1 kid who isnt old enough, or "TRAINING ELITE" is stuck at the gym doing leg lifts! It may be ok for a while, but it won't work long term. Great coaches (Don Peters for one) have tried it, it didnt work and they now have the kids work through the levels.
I remember having a conversation a while back w/ a great junior Elite in her heyday (Jr National Champ) and she told me her only regret in gymnastics was she never competed on a team & had fun in meets when she was young. She was that talented kid who skipped compulsories and was doing leg lifts at the gym while her friends were all at Level 5 meets. She has since burned out and burned out in 2007 and she could have most likely made the 2008 Olympics.
Of course, its only my opinion, but it comes from experience, and is based not only on what I have seen & heard, and also from making mistakes. I wish good luck to all these kids that are being rushed through the lower levels- to have coaches say the compulsories are not important long term is just a cop out--- IMHO
! You can do both and the gymnasts will be better off in the long term!