I agree that the incentives in reaper (+XP, reaper trees, cosmetics, etc) are definitely over-pushed at this point.
I think you have to separate low skull grinding and high skull play in terms of the overall effect on the meta. R1-R3, maybe R4 is just grind material at this point and totally fails at the stated purpose of providing extreme challenge to established players. Most R1 instances are solo grinders at work using it to TR a bit faster and slowly accumulate reaper points which then make future R1-ish grinding easier.
High skull play on the other hand largely achieves the goal of giving players more challenge, albeit with too many incentives involved to make it a meta played for challenge and fun.
Making low skull grinding less efficient, by making it tougher to solo and duo and by removing things like the souls, would make grouping at those difficulties more common and the actual challenges involved more rewarding to complete.
At high skulls the challenge is there however the meta change to ranged and caster-heavy is also a feature. Removing the souls would also help here as casters are OP in that meta as it is, compared to melee.
If reaper was actually about bring your friends to conquer a higher difficulty level and have fun along the way as you try to survive it would be a very good endgame. In the form it currently takes it is just another form of the endless grind - begging for yet another difficulty level to actually provide challenge to the established players.