First thing, I believe the Swiss work on a militia principle rather than a large standing army. That is, Swiss men have about 4 months obligatory national service at 20. Once you finish this, you are obliged to attend a month here and there until you are in your 40s. So considering they have a population similar to London, they have an awful lot of potential manpower. I am not sure if they have the Greek system where you are obliged to keep your military-issued rifle and sealed box of ammunition at the ready.
Second thing, the TA account for 25% of the UK's army. I'm not a member but I know several guys who are and a couple of them were called over to Iraq at the very beginning of the war (Royal Engineers), were there for a good long while... in fact I'm not sure if one particular guy is even back yet! Only one of the TA members I know wasn't sent to Iraq, but he is a t**t. So I am pretty sure that TA soldiers do pull their weight, although obviously you wouldn't want to send them into the same situations as you would a professional soldier.
I think that military traditions are vital. There are some traditions in the world that don't really serve much purpose. A lot of those in industry for example. However, tradition is one of the things that attracts people to the forces. It makes you part of a long history and (hopefully) a long future. Now, whatabout the Household Cavalry Mounted Regiment? Blokes on horses, with shiny hats with plumes coming out?
It is possible they could do their job a lot more effectively in a simple plain uniform, without a horse. Dubbya is guarded by blokes in sunglasses and suits with earpieces, that seems to work quite well. But, would you feel the same sense of pride? What about the Queen's Guard? Would they be the same with normal hats instead of a grizzly bear plonked on their head?
Traditions are what make people loyal to the regiment, what make people proud to be in the regiment, and what make people strive to make their regiment the best. As a child we lived near an army estate (army-owned houses, but miles from a base), and I once witnessed two girls fight over whose dad's regiment was best!
Regiments have been created, merged and split for centuries, but we don't really live in a day and age for creating traditions, surely?