Check out the article PH posted on the Detroit charter school debacle. It involves self-interested charter school administrators taking advantage of parents who don't have the tools to make informed decisions. It also talks about how difficult it is for people without means to access all the "choices" when they are dependent on crappy public transportation.
The Detroit model is pretty much exactly what you advocate for. Wide-open choice, free-market incentives, and defunding of the public schools.
Testing is absolutely a valid device for measuring performance. The point of testing, though, should not be to stigmatize a school to induce its most-informed, most-involved, wealthiest parents to move elsewhere. It should be a tool for teachers to evaluate student performance and adjust teaching methods appropriately, and for supervisors to evaluate teacher performance and train and adjust staffing accordingly.*
ETA: *this part is where public school systems, especially those with entrenched unions, often fail miserably. Principals have to have the authority to get rid of bad teachers. On the positive side, you need highly trained professional principals with the time and ability to train and mentor their teachers, giving feedback on actual classroom performance based on observations and testing. This also goes to funding. When class sizes are too big or schools are gigantic, it becomes very difficult for teachers and principals to have the capacity for this kind of time-intensive observation, analysis, and training.