Sheet DPS and paragon levels are the only quick way to determine “power” when looking for people to invite to a group. Unfortunately, this measure isn’t ideal and can lead to bad decisions or unfair treatment. If only we had Vegeta’s scouter that we could use to see someone’s “power level” and then remark that it’s over 9,000.
For example, as DiEoxidE mentioned, some stats like cold damage %, or area damage, and pretty much all toughness affixes, do not factor into the sheet DPS. This could in turn lead some less experienced players to skip those affixes to inflate their sheet DPS and think that this is what groups want. Then when they actually enter a group setting, they could die a lot since they went full glass cannon and actually contribute a lot less than a lower DPS but better informed player.
As for the paragon level discrimination, it is true that there is a correlation between paragon level and overall character power since the more a player grinds for paragon, the more chances they have to obtain good equipment. However, the paragon levels themselves do not matter significantly unless there is a very large difference (e.g. 2000 vs 4000 paragon).
I made a post about Dexterity scaling vs GR progression a while back that illustrates that paragon isn’t going to provide a huge advantage until massive amounts are obtained, and even then it provides more toughness than damage when considering pushing into higher GRs.