There are a number of thoughts I have about this, which I will try to note down. I haven't read the rest of the thread and may not for some time, so apologies if there are repeats of any points. Looking forward to hearing what everyone has to think.
- Children know
Whether you call it set 1, 2, 3 or pink group, orange group, flowers, bees, whatever else. Children know when they're being grouped by ability, as young as year 1. They can work it out from the people they're in a class with. If you're with Hannah the swat, you must be top set because she will be. If you're with snot-bubble Sophie, you're definitely bottom set. Children know that. Trying to disguise it is a waste of time.
- It can be demoralising
I see tonnes of arguments among year 7s and 8s that I teach about who is smarter because of sets. I repeat that it's just rough groupings, it doesn't mean someone is more clever than someone else - it just makes things easier for teachers to teach. But every year it's a sign of intelligence and therefore status.
- It can be easier to teach
Where I work we have 11 year olds holding a teddy and speaking to staff through "emotional response cards". We also have 11 year olds who get through the entire lesson's work in half the time as everybody else and you need to find ways to stretch and challenge them without simply giving them more of the same. As a teacher you are 1 person, and while many classrooms will have teaching assistants, plenty won't. Therefore, having children grouped according to ability makes the gap between the two extremes a lot smaller.
- Peer learning is a thing
Plenty of children like being helpful, and understand more as a result of supporting others. Howard Gardner believes in an "inter-personal intelligence", whereby you can be intelligent at engaging with other people. I'm not agreeing with all his theory, but I do think allowing children to support each other is powerful and important for their own social and emotional development. I also think it's important for those who may struggle to motivate themselves, to see other pupils working hard - competition helps. It's equally important for those who are very talented at Maths/Science/Art to see those who aren't, keeping them humble but also as a confidence boost too.
- Context is everything
This really depends on the school and the department as to whether setting is better or worse. If you're in a selective institution, the entire cohort is all of a more similar minimum standard. The gap between your two extremes is much smaller. There is perhaps then fewer advantages to strict setting in these schools (grammars, independent). This is a generalisation, not every selective school will be disadvantaged by setting. Then there's the subject. Maths departments traditionally use set classes because it's a relatively linear subject of progression. Compared to something like geography, whereby one child could excel at studying earthquakes but struggle with population and human development. Maths is also something where topics can vary in pupil interest, but in order to understand how to do a more difficult puzzle, you need to understand the simple problem first.