I agree that there is a distinct differenct between assessment and grading, although it took my first few years of teaching to really understand that. I believe that assessment has a definite role before, during, and after instruction. I pretest frequently over areas throughout the year. These scores then fall into three possible ranges. If a student "tests out" by demonstrating mastery, then they don't need to spend the time rehashing what they already know. Some students fall into the tutorial group, which means that they need grade-level appropriate instruction. Others need intensive remediation. This type of formal assessment allows me to keep all students working at challenge level whatever it happens to be for them.
In our reading groups, the assessment is informal but just as valid. As a fairly new teacher, I tried the literature circle role sheets so I had something to assign a grade to, but I noticed that their discussions were more shallow and less involved when using them. I struggled for several years on how to "grade" their literature discussions before deciding that I didn't have to assign a grade to everything they did to make it valid. It is in situations like these that I sometimes feel that grading is almost a hinderance to what we do.
Teachers who don't assess frequently and in multiple ways, whether through exit slips, question boards, or just by watching students' expressions and body language to adjust teaching speed, are missing out on an invaluable way to tailor their teaching to suit the needs of the students.