Pygmalion effect (or self-fullfilling prophecy) is a phenomenon according which the behaviour of group is what is expected. The phenomenon was demonstrated in a study of military training in (Eden, D. Pygmalion without Interpersonal Contrast Effects: Whole Group Gain from Raising Management Expectations, Journal of Applied Psychology, 75, 1990). In the study two teams were observed during their training period. Platoon leaders of one group were told that their men were above averige, while leaders of another group received no information. In reality the two groups of men were equal in potential. However the group that was said to be above average outperformed the other group at the end of the training period.
This supports my belief and observations that to some degree a person has the potential that the leader is willing to see in her.
Based on these ideas I challenge the need for above average (or level 3-5) developers in agile development. Agile framework works also very well as a training camp for junior developers. After all if we said that all developers in agile environment need to be above average, where would all 50,0001% of developers at and below the average go? To marketing? No can do, we need agile customers as well! In these settings the scrummaster's (or XP coach's, or...) role just needs to extend to facilitate this type of learning. Maybe she needs to be more technical than with senior developers, being able to guide with simple design, unit testing, refactoring etc., but it is essential to avoid microleading and accept failure as a method of learning. It is also important to have eyes open for the existing knowledge of junior developers. In most cases it's there enabling two-way learning experience.