What you're saying here is true, and I agree 100%: The Madaaris these days are NOT producing true `Ulamaa. They're producing puppets, clones, robots, but not "`Aalims". I have many reasons for saying this, but one of those reasons is as you have mentioned, their level of `Ilm has dropped. But, that is exactly what I was speaking about: Back in the founding days of Deoband, Jalaalabad, Jaami`ah Binnoria, etc. they were producing `Ulamaa like `Allaamah Anwar Shah Kashmiri, `Allaamah Yusuf Binnori (after whom Binnori Town is named), Maulana Rasheed Ahmad Gangohi, Maulana Qaasim Nanotwi, Maulana Zafar Ahmad `Uthmaani (author of the 20 volume Hadeeth Kitaab, "I`laa-us-Sunan"), and so many others. From Pakistan you were having `Ulamaa like Mufti Nizaamuddeen Shamzai, Maulana Haq Nawaaz Jhangvi, Maulana `Abdur Razzaaq Iskandari, Maulana Anwar Badakhshaani, etc. The original Taalibaan - before it turned into the America-controlled party that it is today - had leaders who came from these Deobandi Madaaris, like Mullah `Umar and others. In fact, many say it was Mufti Mahmood-ul-Hasan Gangohi himself who had given Mullah `Umar the go-ahead to start the Taalibaan. So, in the old days they were producing `Ulamaa who had `Ilm, and were pious, and were involved in Jihaad. But, every single movement that has come has had its peak and thereafter fell into decline. There is no more "Deoband" today. Some, like Maulana A.S. Desai (Mujlisul Ulama of South Africa) even believe that Deoband went into a decline from the late 1980s, and that this was the opinion of Maulana Maseehullah himself. So, the Madaaris fell similarly. You go to SA and you find that the older generation of `Ulamaa are at least 10 levels higher than the modern generation, because during the days when they were studying, the amount expected from a student was much higher. Here's where that "bar" analogy comes in once again. That "bar" was kept higher, so Madaaris produced much better `Ulamaa. But there's another issue to take into consideration: Back in the old days, Madaaris in the Indo-Pak subcontinent didn't have exams. A person would pass without going through any exam. As a result of that, you had certain people who didn't pay attention in class passing as well, and so now when this guy gives a talk, people listening think to themselves, "What did he possibly learn in Madressah?" But you can't use him as the criterion. Look at the students coming from the Madaaris who actually bothered to pay attention in class, and study properly. The system was in place: a person studying properly and paying attention would learn all of the subjects I mentioned. If a person sat there sleeping, not paying attention, then the fault lies with him and not with the system. The "Darse Nizaami" syllabus is well-capable of producing an `Aalim who knows his work very well, provided he studied it properly.
The point is this: The fault is not in the system, but in the students. The Darse Nizaami syllabus aims at producing a "Malakah" in the student, an ability to be able to understand any Kitaab and any of the Deeni `Uloom. However, in order to attain it, they themselves must make the effort. What you mentioned about parents sending their children to those Madaaris (there in Pakistan) because they don't have enough money for anything else, is the reason why the students don't come out as `Ulamaa. They went to the Madressah only because their fathers forced them. They themselves had absolutely no inclination towards Deen or becoming an `Aalim, and so they don't bother to study properly. They just "go with the flow", don't do any studying outside of the Madressah, don't even pay attention in class, etc. So obviously when such people come out, they can't even read a single sentence of Arabic. I've seen this myself. But, these people would come out the same no matter where they are put; they don't want to learn and so they won't. You can put them in a Madressah in Madeenah, or Yemen, or Syria, or Egypt, or anywhere else, and they will come out exactly the same. There is a saying: "`Ilm is such a thing that, if you don't give it everything of you, it will give you nothing of itself."
To summarise:
The fault lies with the students and not with the Darse Nizaami syllabus. The same system that produces - as you say - a person who translates the Qur'aan wrong, produced the likes of Mufti Mahmood, Mufti Nizaamuddeen Shamzai, etc.