@theanaconda - here are the FERPA rules:
http://www2.ed.gov/policy/gen/guid/fpco/ferpa/students.html
The pertinent language is “inspect and review.” An exception is given if students are not within commuting distance of the school. Additionally, most students waive their FERPA rights to see their letters of recommendation when they submit their applications (I believe it’s a box checked on the Common App). My understanding is that any comments by admissions people that reference those letters can also be redacted before records are shown to students. I am quite certain there is no “illegal doctoring” going on.
Did you read the second article I linked - the one from Time Magazine?