Would it be better for a school to have pass/fail or letter grades?
Whether it's better to have pass/fail or not is personal preference. If you go to a school that's pass/fail, and it turns out you're scoring really high % in your class, you'll start wondering "I wish we had letter grades so I could be more distinguished". If you go to a letter grade school and you find yourself in the middle of the class, you'll start wondering "I wish we had pass/fail so I wouldn't look so dumb on my transcript".
Personally, I prefer pass/fail, but my school does pass/fail/honors. There's less stress on you to always score high marks if it's pass/fail. Realistically, there will be times when you feel burned out and don't want to study anymore, and that's when you'll be really glad you went to a pass/fail school. Some of my classmates who usually score 90%+ in classes and honor everything have a few blocks where they just don't care and end up getting 75% or so. The human body and mind can only handle so much.
For the most part, pre-clinical grades don't matter much when applying for residency because there is so much variation in grading between different schools. But, I think it's still nicer and less stress to go to a school with a grading style that you like.
For schools with pass/fail how would students distinguish themselves from one another in terms of grades/performace?
The main distinguisher will be Step 1, since that's a standardized test and is used to compare you to the rest of the med students in the world. And, like flatearth mentioned, some schools do internal rankings.
Also, I wanted to add to my previous post that knowing the passing % for the school you want to attend is important too. When I was in undergrad and deciding between med schools, I thought most schools would be uniform, but it turns out some schools have their % needed to pass a course at >55%, while some other schools require >75%. If I could go back and attend the school with 55% minimum pass, I would have been able to slack off so much more these last 2 years.
