rec letter ethics

I'm faced with something of an ethical quandary right now. In my department at Large Urban U, we have several graduate degree programs. Some are nationally ranked; others are not. In those latter programs, we mostly serve a regionally-based population of graduate students. One of my MA level students from last year asked me to write letters of recommendation for her as she applies to PhD programs. She asked me (and I agreed) last spring, at which point I also tried to counsel her about how to select an appropriate program. Only later, this fall, did she tell me which programs she was applying to.

Quite frankly, I think she's applying out of her range. There is no chance that she's going to get in to 2 or 3 of the 8 schools she's applying to. I hope she'll get in to a couple of them to have some choice and hopefully some funding.

My problem? one of the schools she is applying to is my own PhD-granting institution, which is in the top ten in my field. (This is the state of the academic market right now: semi-mediocre places like Large Urban get to hire people like me with degrees from Ivies/Ivy Equivalents. I don't have a problem with working at Large Urban -- the public service that I do in my undergraduate teaching is one justification for my professional existence. In fact, I'm happier here than I would be at many top ten places.) I don't feel that I can write her a strong recommendation for my own former department -- not only because she isn't of that caliber, but also because my own reputation is on the line in a sense, since they know me. Yet I have to write something.

Plus -- in looking over the forms this student gave me for some of the schools, I notice that she has refused to waive her right to see these recommendations. I'm not sure what to think about that. Is she simply clueless about how the system usually works? or does that imply lawsuit? or have things changed since my day, when we were told that basically you had to waive it in order to get a good evaluation?

I hate the inflated language that is so frequently used in these letters. I've often suspected that I'm not really that good of a rec writer, unless I really know the person quite well. Which too often isn't the case. I barely know this student, and her performance in my class was OK, but not outstanding. Not top-ten PhD material. Probably lower-40% PhD material -- which has its own ethical issues too, since I believe that too many depts are putting out too many people with PhDs who are then woefully underemployed or exploited by the adjunct system.

Do any of you flat out refuse to write letters of rec? I've never before had to write one for PhD programs, so I'm feeling a bit stymied. I'm going to be stricter in the future about who I write for (i.e., you have to have taken 2 courses with me, or something). I guess a lot of my discomfort this has to do with the fact that when I first agreed to write for her, she was talking about applying to our own PhD and some other less prestigious places. Places she'd have a better chance of getting into. I certainly did not encourage her to consider the places she's decided to apply to, because I'm just not that cruel. I know that sounds harsh, but it can be devastating for students to get 7 or 8 rejections, too.