What's interesting is that I ran Wintergrasp a few times before having those slowdowns in Dalaran, and never had a problem. But then again, Blizzard did say that they had spent a lot of time making sure Wintergrasp was streamlined enough to run huge battles with minimal slowdown, so maybe Dalaran didn't get that same makeover. And I should say as well that I had no issues anywhere else in the world -- even my Naxx run the other evening looked perfect with Ultra flipped on.
Having a "future" graphics mode on PC games is nothing new -- for most games, the highest graphics setting is usually "experimental," so there's a little leeway in terms of release time (the game looks good with current hardware, but even better with next year's gear). And Video Mode Ultra is just that -- Blizzard trying to send a shot across the bow at those who are already saying the graphics look a little dated.