It's just fine. BMI is a proxy measure for overall health and risk of future health problems. Like any global proxy it is not a perfect fit for every situation, but it's a reasonably accurate quick'n dirty screen to go looking for other issues. So it's not a diagnosis in and of itself but it's a pointer to other issues. The sit/stand test would another example of this kind of measure. It's not measuring anything specific, but it's highly correlated with health outcomes. BMI has the advantage of being incredibly easy to measure, and it can be done from historical records where height and weight are available.
So there are problems with it, notably that yes muscle weighs more than fat. So yes, many bodybuilders appear as borderline obese. What this means is that there should be followup as it's a screener. A lot of people think this affects them, but if you aren't lifting 2/3/4, it probably doesn't. Those heavily muscled individuals are so far out on the bell curve they don't affect those of us in the middle 99%.
There are other problems with it, including that it doesn't scale well with height, so it gets wonky if you're taller than 6'5" or so.
Alternatives such as waist-to-hip ratio and waist circumference are better measures for individual diagnosis, but tend to not be favored in the research literature because there are not large population databases available, and historical comparisons are generally not possible.
You dramatically overestimate the number of people who can bench their bodyweight, forget about 2 plates. Your highschool were people in their prime, I bet those 7 did not maintain their fitness through the following 3 decades. And as I said that's a starting point for considering whether BMI breaks down for an individual, it's not a definitive statement.
BMI is just a tool for assessing whether there is cause for concern. Like a screening when a physician asks how many drinks you have a week. An answer of 10 doesn't make you an alcoholic, but they'll ask some follow up questions.
Similarly a BMI of 30 doesn't produce an OMG reaction and pressure to get bariatric surgery. But it will drive a lifestyle conversation. And I can guarantee any physician who sees that result and and sees you're built like a brick shit house will not be recommending food restriction.
The BMI standards were established in a healthier baseline population than currently exists. The 1940s and 1950s had a higher proportion of manual labor than we have now. So those arguments fall apart.