Hey BL!NK,
We used to have a 'rating' system before on some of our other sites and we've chosen discontinue the practice. There are just way too many problems created by them. From people 'gaming the system', to people having their feelings hurt, to some people thinking they are "God's Gift to AddOns", to ... We just feel that it isn't actually all that beneficial to the community. You are correct that the number of downloads doesn't always reflect a good quality addon, however it along with the favourites lists do tend to be a not unreasonable indicator.
We're always open to suggestions, and discussions about those suggestions, though.
[Edit] Also, no, the favourites list has nothing to do with a rating system. It is a way for you to keep track of your favourite addons so you can get notifications whenever one of them is updated.