Lol I always wondered why no one ever made a thread about this. I always found that jutsu messed up, but not for the reasons you stated as the log isn't transformed into a breathing human, that's an optical illusion. It appears like that the user has been hit, but in fact it wasn't (and even if that was the case even that is nothing special as it's not that hard either for shinobi to give stuff other appearances), the only thing that ever has been hit was the log.
The user is simply switched with an object just before the moment of impact, creating the illusion he is being hit. The illogical part is how can he change himself with an object that fast? If you're that fast, you could easily dodge it and counter the opponent. It makes no sense that you would waste your time dodging an attack, get an object from around and place that on the place you stood.
In the end though it's an extremely basic jutsu that every shinobi knows. That it has been mainly used at the start of the series has probably to do with that. The difference between Kakashi and Naruto, Sasuke and Sakura during the bell test was so large that Kakashi could easily toy around with them by for instance switching himself with a clone on the moment Naruto thought he had him.
In fact that jutsu is more of a prank than anything else most of the time. Later on in the series something like that would just not work anymore as all the shinobi that appear are supposed to be experienced. If you would try that jutsu on them, it could potentially kill you as they would see right through it as it's so basic. It's also pointless in battles on life and death to bother switching with a log if you could use that time to attack the opponent.
The reason why Kishi added it is because it's one of the most classical ninja skills around. It frequently pops up whenever a ninja is introduced in a series.