I agree with your statement about only being able to judge 4 or 5 quality levels. This of course only applies to subjective work, not to things like math, grammar, etc. Subjective classes like Composition usually don't feature such an emphasis on daily or otherwise regular homework assignments, therefore the large assignments would be the tests. But I would also argue that 4-5 levels of quality is too much, because is the grader comparing papers to other papers, or to some ideal paper that exists in his mind? I think for subjective grading, the only options should be pass or fail.