I'm a Rochester student ('05) and I just want to say a few quick things.
First, about the grading system. The first two years of basic sciences are pass/fail. I think this is advantageous, because as you are getting to know people and build your community, it is a very non-competitive environment. The clinical years are graded, but frankly, grades are looked at very seriously when you are applying to residency. I'm not sure how a residency evaluates students from med schools that are entirely pass/fail. I would imagine that they weight very heavily towards your USMLE Step I score, which may or may not be an advantage depending on your test taking abilities.
Second, as to the city itself. It's fine. It's not great, but there are advantages to living in Rochester. If you are dead set on going to a major city for med school, there is no way I could convince you to come to Rochester. On the other hand, the quality of life that a medical student can afford to live, on loans, is pretty amazing. Rents are cheap, restaurants are cheap. There is also no traffic problems, there are great schools in affordable areas if you have children. I go to the best gym in Rochester as a med student, and it's a luxury that would not be possible to afford in a "better" city.
The final thing I would say about Rochester is that it has very solid to excellent reputation, and typically sends it's grads to the best residency programs in the nation. There are faculty with national reputations that can help you build connections at highly respected institutions. It's not an ivy league, but if you work hard at Rochester the sky is the limit.
I don't regret coming to Rochester, in fact, I"m incredibly happy I did. Four years is a relatively short amount of time to live somewhere, and I've enjoyed my time here. It's not NYC, but building a life you enjoy is up to you, and you can do it in Rochester (cheaply) if you put a little effort in.