Yeah, you don't want this sort of thing graded on a curve -- though the "race to the bottom" issue isn't substantially worse here than it would be with a more conventional problem set. Curves are generally set by the amount of effort the average student is willing to spend rather than the amount of effort an arbitrarily ambitious student is willing to, meaning that if you're in a position to be making decisions about how to allocate your limited study time you probably don't need to be doing so.

The teacher in my example didn't grade on a curve, he assigned grade boundaries based on his idea of an acceptable level of effort and understanding. He also included estimates of each problem's difficulty, which was helpful for time management.