I'm not disagreeing with your points, Hanzou, except that what people think validates an art (the founder's skill) isn't necessarily valid. I can't do splits and extreme kicks like some folks (think Van Damme in his movies), so what that founder can do doesn't mean the system is useful to me. If he is really good at getting people flexible enough to do those, that's more useful, but I'll only be able to see that in his students, not in himself.
If you don't view the system as useful to you, you wouldn't pick it up in the first place.
Take JKD or Wing Chun; Many practitioners in those systems started training in those systems because of Bruce Lee. They'll never have Lee's physique, or his skill level, but they train in those systems because Lee legitimized the system to them. What they'll find "useful" is a personal thing, but if they stick with it, they will find something that is useful to their goals, physique, etc.
And I'll assert that there have been "bad" systems. They generally don't last, because they are confusing and frustrating. Sometimes a first generation will "get it" because they are exposed to the source, who may be a fantastic fighter but crap at systematization. That first generation may contain one or more people who manage to extract a reasonable system from the mess and pass that along, but the original system was crap.
Well yeah, that's my point. If a system has lasted for hundreds of years, then it can't really be a "bad" system with no benefits. Clearly it offers SOME benefits to its practitioners or it wouldn't have lasted this long. I think the problem is when someone picks up something like Tai Chi and believes that training in Tai Chi will make them a fighter like MMA or Bjj would. That's simply not the case because Tai Chi simply isn't designed for that purpose.
Perhaps in the murky past some guy used Tai Chi to kill 20 bandits on the road to Beijing, but there hasn't been any amazing Tai Chi fighters in recent years. So while I certainly wouldn't recommend Tai Chi to a woman looking to defend herself, I would certainly recommend Tai Chi to an elderly woman looking to stay active without injuring herself. There's nothing wrong with that.
I agree with the tendencies you talk about. Because so many martial artists get into what's "right", it's easy to miss opportunities to evolve the art. In fact, that mindset can cause precisely the stagnation you're talking about. The problem isn't that it was designed for a Chinese pirate 500 years ago. At that time, it was designed to be effective, and the founder created something that worked well for what that pirate was facing. If the art is to remain a valid fighting system, it should continue those concepts: following what works well withing some central principles. Western arts aren't immune to this, of course. Some arts become cultural hold-overs (fencing, Iaido, archery, etc. are easy examples), and some progress. Western boxing seems to have remained fairly valid for the last couple hundred years, though it has serious weaknesses for grappling. Many martial arts have weakened because they practice against attack types that aren't as common today. Heck, even an art as young as NGA (founded in the 1940's) has to guard against that, incorporating changes that account for how people tend to attack now.
Well, actually that is the problem, because the only way for an art that old to evolve is for it to incorporate modern concepts and to become a hybrid style, losing its individual flavor. Thus, Chinese Pirate Kung Fu is probably not going to be willing to evolve their style because they don't want to lose their uniqueness. Again, in that case its less about fighting effectiveness and more about retaining the culture and tradition of the art, which is why its practitioners learn ancient kata and obsolete weapons in order to further whatever goal they're working towards. In the end, you see MMA hopefuls who practice CPKF hoping to be able to be competitive in a martial arts bout, and they're simply not. It isn't because the rules obliterated the effectiveness of their system, its because their system has become obsolete in the face of more modern methods.
It's like a model T getting beat in a race by a Nissan GTR and blaming the race track for the results instead of recognizing that you're simply driving an outdated machine for that purpose.
Western boxing is a sport, so its going to evolve mainly to coincide with whatever rules governs its sport. In some cases the rules don't really hurt the overall system (like Boxing), but in some cases (like Judo) it definitely hurts the overall system. However, the benefit of martial sports is that you have to get good relatively quickly in order to be competitive, so if your goal is to learn how to be an actual fighter, that's the route you're going to want to go instead of learning Chinese Pirate Kung Fu.