I applied successfully under the business category (starting with the 3-year work permit) and don't see why you would say that everybody would fail. To the contrary, this is the most popular way to do it, I'd say, as everybody I personally know who got PR used that option.
I didn't have my yet PhD back then, but I believe it gives you a higher score for education. At least it does for citizenship applications. Nothing to do with the "power" of any particular institution, but a very transparent point system. It does not matter where you graduated, as long as it is an accredited university. I bet your "old chap" did not get an endorsement letter, he just presented his degree. If the uni also wrote a letter, they will have ignored it.
No, I did not pay "speed-up money". What for? I never saw a reason for it. Lawyers can't do anything anyway, and rumours are that they pocked a big chunk of the money paid without receipt themselves. They cannot make you pass if you don't meet the criteria - for which you don't need a lawyer.