Poppa - if you aren't familiar with NWEA's MAP test, take a look.
http://www.nwea.org/products-services-0

I love your idea of "Teach each to his/her ability" and think it's a great keystone of what education could be about. On a more practical level, I think that "Teach each child within their readiness level" is more 'actionable.'

To me that implies
1) figuring out what are the steps to learning a skill, or advancing in a subject
2) testing which steps the child has mastered
3) moving the child to a location where a lesson is being taught that is designed to teach that skill

Computerized teaching seems so appealing to me, but after observing my son, I see that in the end, he really wants several children to interact with (and show off to.) Perhaps computerized learning will really flower when it allows peer interaction in some meaningful way?

Always fun to hear from you -
Grinity

Coaching available, at SchoolSuccessSolutions.com