Doing a small amount of damage doesn't protect someone from an attack unless this damage kills the attacker. Preventing damage protects them, it's a form of pre-healing almost. It makes it much better, especially against elites/solos.
Have you seen this happen in game with a Paladin you play with?
The small amount of damage my Paladin's mark does has deterred enemies from attacking in all cases except: 1) Where the enemy was mindless, 2) Where the enemy had so many hp that it was willing to take the damage - and this only on OAs, its primary attacks were still on the Paladin.
In play, the divine challenge has been incredibly effective at deterring enemies from attacking anything but the Paladin, especially effective at stopping OAs, and absolutely destructive against undead. My mark's damage has killed two or three undead...
We were fighting on big undead brute that hit for 28 damage one round, then 22 the next vs 2nd level characters. It was on my paladin, but had it been against another player, the undead would have taken 17 damage from the mark each attack(7 + 10 radiant vulnerability). With the swordmage's, assuming 10 reduction, whatever it hit would have taken 18 and 12 damage, still enough to drop anyone not my Paladin, requiring just as many healing words to top off from the cleric, but without the 34 damage done to it. Yes, this is a corner case, but it is an in-game example of divine challenge's potential effectiveness in play.
Of course, you are just your stating opinion. My opinion, based on my experiences with the Paladin's challenge in-play, is that it is not inferior to the Swordmage's in any way. I consider both useful, depending on play preference.