Making the Grade

Lately my kids have been playing Sonic Colors and it's got me thinking about the way we calculate grades. The game is total points accumulation that is translated into a letter grade. The more you play, the higher your score.
Should that be the way grades are calculated? What if I listed all assignments and their corresponding points. Students could choose how many points they want to earn and complete enough challenges to get the grade they want. How is this different from GPA?
Part of me thinks a standards based evaluation would be much more open ended and still allow for students to have varying levels/amounts of work. I'd also not get sucked into checking hundreds of individual tasks each year.
What do you think? Is there a fair and equitable method for assessing student understanding and skills that would be easy for parents and students to understand? How would either method handle the end of quarter extra credit panic to raise my grade?

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