[mikeliu]

And then, as I get over my annoyance, I realize that, by overstating their abilities, the student has probably gotten the best letter out of me they could have gotten.

What's wrong with a good recommendation, as long as it comes off believable? I feel the whole point of a recommendation letter is so that the person you are recommending achieves the goal she/he set out to achieve. Don't agree to the recommendation at all if you think they are not qualified. Afterall, it's called a recommendation, not an evaluation.

[cracki]

technically, it is. but practically, the one who reads it expects some veiled insights, some evaluation.