They obviously should not be getting more loot than you can get on raids on average, but I agree, raiding should not be the only route to go. Challenging content and group based progression is something that is lacking big time in Everquest.
Creating a progression path for groups would not make raiding obsolete, if implemented correctly. If you think about it, a raid of 54 people usually has a good number of recruits, who are undergeared compared to the core of the guild. Yet they get by. This wouldn't be possible in a 6 man progression model, as each individual is more significant and critical for the success, thus, every single member of the group would have to gear up in order to beat the next higher event.
At the same time a raid could still drag under geared folks through events that are way past their personal progression level and equip these people with items that are clearly not meant for them. We see it every day. Raids would still be appealing in terms of progressing at a faster pace. And then, of course, there's the aspect that many people claim to love raiding for the challenge, which would definitely not change for these people who enjoy working with 50 other people, by implementing a group progression path.