What's unhealthy/weird about it? I've been at several Universities and each of them has their own 'traditions'. Also, I wouldn't really call the examples you gave as 'oxbridge traditions' (you're right that things vary a lot by college).
Not to mention that UCL is just as "elitist" as Oxbridge, and aspires to be more so...
(Disclaimer: UCL alumni)
* http://en.wikipedia.org/wiki/Academic_dress_of_the_Universit...
* http://ask.metafilter.com/59198/Why-do-students-at-Oxford-Un...
* "If the Proctors consider you not to be dressed correctly they reserve the right to refuse you entry. Any infringements involve the Praelector in paying a fine of a bottle of Port!" (http://www.clare.cam.ac.uk/Graduation-2011/)
-- which serve no obvious purpose, but can potentially make people feel that Oxbridge students are strange and different (and maybe posh or snobbish), and not the kind of people they'd like to be around or become.
I'm not saying this is always an easy call, though. Once you're there, a bit of harmless tradition can of course be fun.
You also say ...but can potentially make people feel that Oxbridge students are strange and different..., which I completely understand. However, I get the impression that Oxbridge gets a lot of attention and people almost look for the idiosyncrasies so they can point them out. I've never heard of anyone being fined bottles of port at Cambridge but I wouldn't be surprised if there were such rule written down somewhere in the last 800 years. It's akin to strange rules like commoners not being allowed to drive sheep through London. It might still be illegal but no-one pays it any attention (nor can they be bothered to repeal it).[1]
(Disclaimer: Grad school at Cambridge)
[1] I have no idea if that's true and I've heard variations that involve tolls and geese. My point is that although such outdated laws exist, no-one really goes looking for them.
Now regarding the fine... i agree with you.
The 'grand formal settings' for interviews are the buildings most of the colleges have -- and one of things that make them such incredible places to live and work. Yes, you could erect a small, casual prefab to conduct your interviews, but that would be kind of dishonest.
On the other hand, Oxbridge probably is unhealthily attached to some of its weird old traditions (gowns, Latin, port, etc.). These things also vary widely between the colleges -- but in ways that are hard to find out unless you are (or you know someone who is) on the inside.