@Intractable Potsherd (re: Proof of Posting)
Recorded Signed For and First or Second Class Post (as long as you have a proof of posting - ie a completed Certificate of Posting) are all insured to the value of 100 x the price of a first class stamp (currently 41p, so the insurance is £41).
Forms such as the V5 do have a value as the cost of a replacement where the original has been lost is £25, and similar charges apply to replacement of lost Driving Licences.
Proof documents such as passports are worth more, and are therefore worth the expense of sending via Special Delivery.
As far as someone being sent back someone else's biometric passport, I don't know why they sent it to the DVLA in the first place - you can insert the passport number in the relevant section of the license application and the DVLA can electronically check the Passport database, all without the need to risk it in the postal system.