Congratulations on getting to the interview stage!! Very impressive, particularly in a slow economy :) To answer your questions:
Does this mean my interviews are a sham?
Absolutely not! Think about it from their perspective - setting up interviews with candidates requires effort, resources, and most crucially, consultants' time (which they would have otherwise spent working with clients). So they would never interview as a matter of course if they were not serious about hiring someone. It is true that recruiting has slowed down somewhat right now, but if you have already gotten an interview, you are going to be seriously considered for a position. It is not a sham.
Do they actually intend to interview me to fill a spot or is competition just tighter for fewer spots?
If you have been offered an interview, it means there is a position available that they see you as a potential option for. Regarding competition, this depends on the full candidate pool - there may be fewer spots open, but they may also be interviewing fewer candidates, for instance. Rest assured that if you are invited to interview, there is a position that you are being considered for there.
Are there any strategic choices I can make to maximize my chances of progressing? I'm thinking along the lines of geographic flexibility, group flexibility, etc.
If you already have an interview, there's not much latitude for geographical or group flexibility at this stage. But definitely bear this in mind if you are applying to other firms right now.
I'm also curious how these firms view entry-level hiring in a downturn. Are they continuing to bring in talent, just at a slower pace?
It varies by region/firm/office, but broadly speaking yes, that's exactly what's going on.
Best of luck with your interviews!