Stopped reading it a while back.
I'm looking for more input on my question, but maybe if I didn't make people commit...
My theory is that most people when they hear: University of Iowa, Indiana, Minnesota, Wisconsin, Illinois, Ohio State, Penn State, Michigan State, Purdue basically think "large, public, respectable midwestern college," without much differentiation between which one is which. I think Michigan has a little bump as far as national prestige. I'd like to think Wisconsin is generally viewed as towards the top of that bunch, but realistically it's not that different from the other large, public, midwestern universities. Purdue has an engineering reputation, among people who know something about engineering. Other than that, I think most of the schools' general reputations come from their sports programs, which basically have nothing to do with the quality of the education.
I largely agree with BRAD that a lot of this is a self-fulfilling prophecy related to subjective prestige, and I think sports programs have massively benefitted schools in generating that prestige. Michigan may be the poster child of that. As an example, I think Notre Dame is a great school (particularly for undergrads, where ND places more emphasis), and I think that while its student body is very high powered that is--as BRAD suggests--largely a function of the applicant pool more than the school itself. And, I think that much of Notre Dame's reputation was built on a powerful, and well-marketed football program.
I will add one caveat: there can be a benefit of having a more selective group of students, not unlike sorting athletes by skill. The student body pushes itself to achieve at least in part as a function of how high achieving it is. Using a sports analogy, you get better by playing people who are as good or better than you. I think that impact happens, in part, in education as well.