I realise a lot of this topic is relative, but having never previously considered the question in this context I thought it quite interesting. As someone who began Karate as a teenager to learn to defend myself I certainly didn't consider ANY of what we've discussed here.

I think that your friend makes a very good point about health benifits and this is a great by-product of training MA for self-defence. For this topic I am more interested in the idea that:

I'd rather have it and NOT need it than NEED it and not HAVE it.

Which is a similar idea to Leo's:

Since physical self defense is probably the last line of defense you have, any advantage you can get with it is valuable. This is why I think that training MA is value for money

And I'm beginning to think that we overstate the benefit of MA in this respect and also the probability of ever needing to use it.

Somewhat evident in what Leo says about probability:
The probability of entering a violent situation can be reduced but never fully eliminated. Even with a small probability, the cost of being unable to physically defend yourself can be extremely high. Your life or the life of your loved ones could be in danger, and it's hard for most people to put a finite value to that.

Now I don't disagree with Leo, but I feel this is a hard sell for martial arts.

To my previous analogy, do you wear one of these $650 Shark Sheild devices anytime you get in the sea as you'd rather "have it and not need it" (video on that page is great scare mongering!)

And benifit:
Martial arts are designed to apply force effectively, reducing the importance of physical size and strength.

Designed by who? reducing the importance by how much?

It takes very little force to render someone unconscious or to break a limb

I really dislike this particular statement. I think it misleads many people who are uneducated in MA and many who ought to know better.
...women can very effectively defend themselves, even with a size disadvantage, if they are properly trained. .....women who I train with who are a foot shorter than me are capable of throwing me while I'm resisting

But size and gender DO matter.

I know Leo doesn't think that MA will fix it for everyone and I certainly agree with him more than disagree.

But are vague and unhelpful statements like these used to justify the need and effectiveness of Martial arts?

And yet people get widely different grades/outcomes--some get "A's", some get "B's" some get "C'" some just barely pass and some fail.

Why should martial arts be any different?

I think there is more honesty in education as it is easier to measure outcomes through exams/post education employment.

A school doesn't tell a 'F' grade student they can get an 'A'
A school doesn't tell a pupil who wants to be an accountant to study Art, PE and Philosophy!
A school has tried and tested methods which are revised and reviewed regularly.

So with regards to general Martial arts practice:

-How many clubs/styles/associations think they do not teach effective self defence? (Or how many think they teach effective SD when they clearly do not?)
-How many would turn away a pupil who stated that their only reason for training was self defense?
-How many would give a genuine advice about (or have knowledge of) free alternatives to MA training? (as has been discussed) here)
-How many give realistic expectations about self defence abilty? (Can this be done?)