"Mid-Major" was originally used because no one had a good term to describe a college or conference less powerful than the BCS college/conferences, but more powerful than the next level down. The Division I-A non-BCS conferences, as of 2007, are the Mountain West, Conference USA, MAC, WAC and Sun Belt.
Sports writers and fans alike often express distase for the term, but no one has been able to come up with anything better yet.
2) Why does Michigan keep scheduling those mid-majors early in the season? Schedule a real team, already!