I played at a pretty high level (probably on a par with College in the States) and I think that experience helped me be a better referee. However, I don't believe that you NEED to have played to be a great ref.
Playing taught me about a lot of the sneaky, tricky stuff that players do (and often get away with) especially in post play. So now I can be more aware of some of the things that players try to do.
Look at it this way - the more exposure you have to basketball - the better a referee you will be. Say you have two referees. RefA has refereed for 10 years, but never played or coached. RefB has the same refereeing experiences, but also played (and maybe coached) for 10 years. RefB has more basketball experience, and will probably be a better ref.
On the flip side - I strongly believe that being a referee makes me a worse player! It doesn't affect my skills, but I find that I am more arguementative with "underskilled" referees when they kick a call. As my refereeing ability has increased, I have also become a dirtier player - as I usually know where/what the ref will be looking at
