Good Article David it covers quite a lot, I definitely agree with you about the competence and professionalism that you mentioned here. I Also agree with Trina and San Way.
If their site is not ranking highly in google well then their probably not very good, but you also have to take into consideration that SEO is going to be a very competitive key word phrase to rank highly for, and I know for a fact that most of these companies have to do gray/black hat techniques to rank highly, not exactly how most people want to have their site SEO.
Now if they've been doing SEO for a while then they'll have a list of clients on display. Google their clients or ask for a list of their clients, and ask for a list of keywords or phrases that they SEO for, see how their clients are ranking. Especially clients from a couple of years ago, if they used gray/black hat practices then these sites will be ranking low if they used white hat these sites should still be ranking fairly high.
My best tip for choosing an SEO company is don't, well not at first. Do some research on off page SEO, spend a couple of months learning and practicing, or take a course. Because at the end of the day you are going to be the biggest and longest contributor to your business's SEO, so you might as well learn to do it right. Then get a SEO company to do your on page SEO, this stuff can become complicated and is worth having someone do for you. On page SEO is about 30% of your google rank (in my opinion I could be wrong) the other 70% is off page.
I'm fairly new to SEO, but you can read about some of my recent experiences on this thread about New SEO Techniques For 2012