William,
I remember a few years ago (perhaps before Starwood) when Sheraton would send me 50% off coupons that were good off a somewhat discounted corporate rate (I think it was called "SET"). Four out of five times, this coupons DID result in a better-than-otherwise-available discount.
Now, obviously, with rack rates reaching for the moon and discounting becoming more prevalent, the current 50%-of-rack "discount" is, charitably, not very useful.
I simply don't understand the value of offering your "loyal" customers a purported savings that doesn't exist. You would be better off simply eliminating it, rather than offer the disappointment of a "false promise."
I would also note that this is yet another example of Starwood training its customers to use off-price middlemen (consolidators and bidding services like priceline) to get lower rates, instead of booking directly with the hotel chain. This is counter to the trends developing in the airline and car rental industries, where middlemen are largely being cut out.