I think it's best for boxing and best for the fighters themselves when it's a very competitive division... Fighters who rise to the top even if they have a couple of losses along the way, really get the credit they deserve in a strong division...
A really great champ in a relatively weak division always has a question mark over their head to some extent... ie. Calzaghe with like 40 wins 0 losses still a lot of people doubted him... Floyd even still doesn't get paid the respect that he deserves from a lot of people because they feel he dominated a division that wasn't to competitive...

But then you have the paradox of the question, where you have a really competitive division, but a great champ who rises above and makes all opposition look completely ordinary.... You can't say that boxing would be better off without these rare individuals just so the rest of the division seems elite...

But yeah, I would definitely say a competitive division is better... And if a champ makes all opposition look in a lower class, they just have to move up a division until they are with equal competition...