It is indeed broken. Not so much because children are playing rated M games, rather because the gradients are often too wide. Rated M Halo and rated M GTA are _not_ the same. While It phases me not the slightest to have a 10 year old (except the fact that 10 year olds are obnoxious most of the time) playing halo I would consider it disturbing that such a child would be playing GTA, not the least because how does a 10 year old even grasp much of the subject matter of GTA to begin with let alone the more violent or adult portions.
More to the point though, I see no reason why a 16 or 17 year old should be banned from playing GTA. We have this stupid idea that just because a person is 18 they magically become adults, when the truth of the matter is you are already as mature as you're going to be the next 5 or 6 years when you're 16.
It's broken because games are getting ratings they should not be, because there _are_ no real ratings to differentiate 'cartoon' violence vs real violence. Suggestive vs real sexual content.
Either do away with the whole concept and let parents be the final arbiter or create a real ratings system that can actually work that _informs_ parents so they can be the final arbiter.