I think it depends on the recipient. A quilt meant to comfort a cancer patient or a sick child, should be as nice as you can make it. A quilt going to a homeless person who is sleeping on the ground - well if I were in that situation I would NOT want a pretty quilt as I would be afraid of wrecking it. I think the Ugly Quilt Project is a good thing.
About the "don't make it too nice so the recipient won't sell it" sentiment that was mentioned in regards to quilts going overseas - well what if that person REALLY needs the money rather than the quilt? I thought that once we gave a gift, it was out of our hands?
I have posted before about a quilt guild in our area, that many years ago was making baby quilts to send to eastern Europe where children were dying of AIDS because hospitals were re-using needles and such. I wanted to SCREAM and say - Sell the quilts here, raise some money, and send them some medical supplies!!! so MORE kids won't get sick!!!