The original purpose of kata is often misunderstood. Today it seems kata is an art form used to win trophies -- it didn't start out that way.
Kata is really just one aspect of a traditional martial artist's training, and it serves to complement the other aspects. The "heart" of a particular style can often be seen in the kata, and it is much more than a performance art. Too much can be made of "hidden moves" and "secret techniques" (though there is some truth to that). Perhaps the most significant benefit of kata training is teaching the body precision and efficiency of movement, along with a balance of finesse and power.
In a traditional school, kata is usually accompanied with bunkai, which is a means of breaking down the kata into practical application of a kata's techniques. In other words, a study of how the strikes, movements, etc... in a kata can be utilized in a real-world scenario. This is good because it takes kata out of the realm of theory into the practical realm.
I think the main reason some people pass kata training off as ineffective is because so often it is practiced with the wrong emphases in modern schools. Certainly it is possible to become a good fighter without ever practicing kata, but if kata training is done properly with the correct mindset it can be very valuable. Kata should not be practiced simply for the sake of "art" or as a means of advancement in belt rank. It is a training tool that offers much to the student that understands it and it should always be practiced with the utmost seriousness.