Points well-taken. Backtesting is, much like paper-trading in the sense you discuss, a way to gain a feel, an experience, for how prices move, for someone who has not experienced such through an intimate and lengthy experience.
But I would never trade something developed on past data. To do so is to be looking at the same data everyone else is. Rather, I want to make money on the way smoke moves through a room, I want to make money by trading anything that moves, not necessarily how it has moved in the past. This means systems where you can see, intuitively, they have to work. All-too-often people start by developing strategies on past data, and they have unwittingly, in most cases, lent themselves prey to the Second Arc Sine Law.
