Here's my psychological assessment of the situation with self-rated players:
I'd be willing to bet that most people who self-rate go at least one level below their assumed level, just to be safe. No one wants to go in all cocky only to get their ego bruised when they lose consistently. Its a gamble, but perhaps we want to have fun more often than not. Playing a level that's too high and getting beaten regularly isn't fun, so a lot of people avoid it when they can.
So they fill out the self-rating questionnaire through USTA. The end says "Joe, you're a 4.0 player." And Joe signs up for a 3.5 league because he's rusty, hasn't played in years, and his racquet has 5 year old strings on it. He didn't bet on the fact that he'd "get his sea legs back" quicker than expected and is handily wiping the floor with his opponents.
As they say, boom goes the dynamite: he gets DQed and is miserable. I'm sure this happens all the time, all across the country.