By the definitions I have read, my daughter is not considered "competitive" because she cannot qualify for qualifying competitions. However, based on my own opinion, she IS a competitive skater since she competes in about 4 or so comps a season and tests 2 to 3 times a season. She skates roughly 8 to 10 hours a week, she takes ballet, just started attending the gym with me, is going to add a group edge class in a few weeks and does some off ice training. I realize there are other skaters that do more and who are competitive, but I certainly would not consider her recreational...yet by definition, she is. Regardless, I don't think it matters if you are "recreational" or "competitive". I also don't think those considered recreational shouldn't test. Whether you are competitive or not, working towards a tests allows you to work towards specific goals. I find that to be a GOOD thing. It is also one reason the test track, track exists. That track gives skaters who want to pass tests but can't or don't want to compete in the standard track a chance to compete with those at their test level but without the higher requirements of well balanced.
I think it is attitudes like the op described that gives TT a bad name as well. Some people I know consider TT as taking the easy way out. So NOT true. Every one is different. TT isn't bad. Being a rec skater isn't bad. Being a skater who doesn't compete but enjoys moving up in levels isn't bad either. All that matters is if the skater enjoys what they are doing.