These are only my own personal views and experiences...your results may vary.
In order, my answers to your questions above are Maybe, No, Yes, Sometimes, and in IPMS contests, Absolutely not.
Weathering of models has been going on as long as model building itself has existed. However, you could be right in thinking that some of the extreme weathering seen today is indeed not only way-overdone and counterproductive. On the other hand, weathering is not a fad. Some techniques might be, but not weathering itself. In fact, most dedicated armor modelers believe that to NOT weather a military model is far worse than applying at least some weathering (unless depicting a vehicle rolling off the assembly line). Weathering is definitely here to stay - extreme weathering will likely come and go over time.
That brings us to your final question and one that I have a bit of a pet-peeve about. In addition to the Judging Guide quote posted above (weathering is neither good nor bad) there is one more entry about weathering under military judging which says - to paraphrase - that judges need to really look at heavy weathering because it might be used to hide basic modeling flaws. That statement, and the one posted by Ron, basically tell the story. Weathering (and especially heavy weathering) is probably not going to give you advantage in an IPMS contest -- it may in fact prevent your otherwise perfect model from even placing.
In a non-IPMS contest weathering models can be very beneficial or even essential. In an AMPS contest, there is one whole area of judging just for weathering. If you don't weather your model, you get ZERO points. At a few contests I've attended which didn't use either organization's rules, very involved weathering was treated like intricate decal work or complex painting, a modeler was usually given extra credit for pulling off the technique effectively.
On a personal note, I actually like some (not all) of the very involved and intricate weathering being accomplished by modelers around the world. Many of the best military modelers are pushing the limits and coming up with new and better techniques...unfortunately a proportionately smaller percentage of those modelers are located in the U.S. As a predominately military modeler (90% or so), I tend to weather virtually every model I build to one degree or another. Without fail, the models that receive the highest number of compliments from modelers and non-modelers alike are the ones I've more heavily weathered. As far as IPMS contests go, my awards tend to come from the models I've more lightly weathered...imagine that.
Just my 2 cents...