I can see both points of view, particularly the point that Iam64 makes re the importance of recognising sporting achievement for children who may not shine so much academically (though I also think there's a risk that some children might get "pigeonholed" as sporty a bit too early in life).
However, I think that the emphasis on competitiveness in both academia and sport at school (and in later life) is not such a desirable thing. That is, of course, my point of view and others will feel differently, saying we would never have had progress if it were not for the competitive spirit.
I'm not so sure about that. I think human beings achieve more when they cooperate with one another towards a common goal, rather than compete against one another for individual glory. And it feels so much nicer too to work with other people, contribute what you can and learn from others' contributions, than to keep everything to yourself in order to be top dog.
With that in mind, I agree with trisher that sports day should be a fun occasion. If parents turn it into a serious affair it is no wonder children lose sight of doing and learning things for the pleasure and sense of achievement it brings - not for some sort of external reward determined by someone else. In some ways you can't blame them though because that is the sort of world we live in.