I have written exactly 15 tenure and promotion letters,including two for promotion to full professor. I have turned down a handful of requests as well, though usually I say yes. I cannot agree that the practice is idiotic. It is true that the vast majority of letters are positive: people are increasingly unwilling to write a negative one, so the problem for weaker candidates is to get enough letters. The Department chair might have to contact more people to get the six letters required. (It's six where I work; your mileage might vary.) People write insincere letters as well, though I am incapable of that. I once, and only once, wrote an absolutely negative letter. I should have checked first to see what the candidate had done, to save myself the trouble and feelings of guilt. I have been sincerely luke-warm on occasion. In other words, I have felt there is some merit to the case, not to be stated too strongly, and that I should write nothing to prevent the person from being promoted at a place where s/he was likely to remain a good fit.
The author of this CHE article seems to think that research can be evaluated in house. That might be true of his field (Finance) which has a quasi-official ranking of the three top-tier journals. You can simply count up the journal articles and see how many are in Journal 1, 2, and 3. My field is much more subjective. I could never evaluate someone doing Colonial Latin American Literature without knowing what people in that field thought about my colleague's research.
In cases I have seen over the years, negative letters turned out to be "right" in the long term. In other words, negative letters pointed to real problems in the research. Not always, of course. The problem is that, with letters skewing so positive, negative letters become comparatively richer in information. Because of a general unwillingness to go negative, we assume the naysayer is more sincere. The negative assessment stands out. I feel better about getting three rave review, two luke-warm assessments, and one pan. That gives me more information than six raves.
There are many things dysfunctional in academia, but I am not sure that the system of getting outside letters for t&p is one of them. Of course, I only speak from my own experience writing and reading such letters. I don't know what letters about my own case said.