I work in HR, and the way we typically handle applicants to positions is that everyone gets a form letter just for submitting an application. We use it to request demographic information (that we have to request for reporting purposes). Since that information is optional, we prefer to request after the application has already been submitted. We also let the applicants know that our search process is somewhat lengthy, so they should interpret silence from us as serious consideration of their materials.
When we've hired someone for the position or otherwise stopped looking, we send letters out to everyone who applied letting them know the position has been filled (or whatever), and thank them for their time in applying for it.
That's kind of a lot of communication, but I make extensive use of mail merge capabilities. I have to keep a spreadsheet of everyone who applies to any given position for other reasons anyway, so I just note their address and other pertinent information, and it takes not very much time at all to generate a personalized form letter to send out.
Granted, recruitment is a large part of my job, so someone who doesn't have dedicated staff working on recruitment isn't necessarily going to have time for all of that. I would say that responding to applicants as they send you stuff is nice, but not strictly necessary. Responding to applicants when you have made your final selection and know you won't be hiring them is, in my opinion, essential to following good business etiquette.
One other thing I kind of wonder, though, is how targeted your advertising is. Most of the people in my department work in a very specialized field that is not well understood by people who haven't been exposed to it. As a result, if we post advertisements too generally, we get a lot of applications from people who clearly have absolutely no idea what we do. We try to target our advertisements to industry-specific (or at least industry-related) organizations and websites as much as we can. I mentally groan whenever someone asks me to post a job somewhere like Craigslist or Monster.com, because we get so many totally-does-not-understand-the-position applicants that way.
If you're posting in general job listings for specialized positions, it might be worth looking into more industry-specific locations to advertise your positions. That will, hopefully, attract an applicant pool that at least speaks and understands your language, even if they aren't all perfectly qualified for your positions.