Serra's specialty is defensive BJJ in MMA, the only legit submission win he has is a triangle-choke over Kelly Dullanty---hardly a ground fighter.
In a pure grappling match I'd possibly go with Serra, but Hughes has a very under-rated and under-appreciated submission game. You have to remember as well that this isn't a PURE BJJ, this is MMA BJJ, and it boils down to who can adapt their ground game the best. Just looking at records alone, Matt Hughes' adaptation of grappling is superior on the offensive level.
Penn couldn't sub Serra, so I doubt Hughes can either. Serra has perfect sub defense record right now and I just don't see Hughes being the one breaking it.
Serra's BJJ is seriously high level with several years of experience, but he hasn't managed to find a way to use it properly in MMA other than defensively. If he gets an opportunity he will break Hughes' arm though or atleast sweeps him, which is why I can't see Hughes beating him on ground.
Also I really can't see how people can rate Hughes' stand up above Serra's. Serra is heavy hitting bastard with pretty solid boxing, sure not perfect in any way, but still good enough to rely on while looking for take downs against opponents with bad ground game, or actually destroy guys with bad stand up. Against Hughes though I see Serra keeping it standing and (T)KOing him. I can see Hughes going for take downs though but as I mentioned above Serra will most likely sweep Hughes and TKO (or sub) him on ground instead then.
About the actual topic though... yes it has lost most of its appeal. I would rather see Serra moving back down to LW already so we could eventually see Serra vs. Penn 2. Overall I see so much better opportunities down there for him compared WW, because he clearly isn't big enough for WW. UFC, Hughes and apparently Serra too wants that fight to happen still though, so lets see it. It'll be Hughes' retirement fight and granting future hall of famer's last wish sounds fair enough.
I really think they shouldn't start building up for Serra vs. GSP 3 though by feeding Serra with couple wrestlers with bad stand up first, but sadly I can see that happening instead of Serra dropping down to LW because there isn't many WWs that GSP hasn't beaten yet left after he beats Penn. Oh well..