I am surprised by how often this question comes up. Some people seem to have this idea that if you aren't studying for exams, you just won't be studying period. That is definitely not the case. I would say that the tempo of studying is probably different here than it is at schools that have tests. In other words, we don't cram right before a test, then ease off, then cram again before the next test here. Instead, we tend to work more constantly at a steady pace. But I do study, and I study a lot.
Ok, so if not exams, then what is the motivation? Well, one thing is that our coursework is very participatory. We are evaluated in large part based upon our participation. This is true in PSS, in seminars, in journal club, and in the lab. If you haven't done the reading, it's hard to participate and avoid making a total fool of yourself. That not wanting to make a fool of yourself is actually a second very strong motivator. I've mentioned here before that your fellow students in medical school are very bright, and very good. No one wants to be the person who is the class slacker or who never knows what is going on. Third, we still have to take Step 1 of the United States Medical Licensing Exam (USMLE, aka the National Boards) at the end of next year. Step 1 covers all of this basic science that medical students learn during M1 and M2. If you don't learn the material, you won't pass the Boards. If you don't pass the Boards, you won't be a physician. Again, this is a very powerful motivator. And finally, a lot of the material is interesting, and I find that I enjoy learning about it. In college you are required to take a lot of fluff classes that aren't all that interesting, and I'm sorry to say that there's some of that in medical school too. But there's not nearly as much of it. The vast majority of the things we do are related to learning about the sciences of the human body. If you're a person who is interested in the human body and disease (and presumably you are if you want to go to medical school), then you now have all of the resources and support to spend your time learning about it for two straight years. It's not that everything is equally interesting. I've definitely learned some things that I could have happily lived my life without knowing. But in general, I have to say that medical school subjects are very interesting to learn about.