This question gets asked over and over again.
Professional schools are all well-aware of Princeton’s grading policy, so it won’t affect your admissions chances when you’re going up against a Harvard grad. They also have GRE's, LSAT's and MCAT's to guide them.
PhD programs are aware of the grading policy as well, but they depend more on your professors’ ratings of you than your GPA, anyway. The Ivy professors are all nationally/internationally-known, and more often than not have had some contact with the professor at the University of Wisconsin who is considering having you work with him or her.
Employers that regularly from the Ivies also are well-aware of Princeton's grading policy.
These places all see numerous people from Harvard, Yale, Princeton and countless other schools across the country. They not only have had to distinguish between Harvard and Princeton grads, they have also had to determine if an Oklahoma student with a 3.9 GPA has learned more than a Harvard grad with a 3.9 (and don't think that they won't hire or admit a sharp kid from the University of Oklahoma over a Harvard grad who doesn't come across as sharp and personable).
Employers that don’t regularly hire from the Ivies might think that the Harvard or Yale grad with a higher GPA has out-achieved the Princeton grad, but these companies are rarely considering a Yale grad and a Princeton grad at the same time.
I wouldn’t worry about a school’s grading policy affecting your life – only one prospective employer in my life asked to see my transcript, and they still interviewed me despite my average (for the time) 3.1 GPA. And that was for a job working for a US Senator's staff that had countless applications. They found other things I had done to be interesting, which is why they pulled my resume out of the pile (for me, the job sounded so boring that I passed on it after the interview, so I never learned whether they wanted to hire me or not).
Rather than worrying about grade deflation, you’re better off expending your energy on getting into one of the Ivy schools – not many students get the option of going to even one of them.
Last edited by Boondocks; 09-12-2012 at 07:14 PM.