They do a lot more than that. I just looked at my Discover Weekly playlist and the second track is from someone with 5,500 monthly plays. That's not showing up anywhere based on popularity. I'd say about half the playlist is similarly sized artists.
My anecdata indicates the opposite, as far as quality of recommendations is concerned. Curious how matters of taste might mean that you can't accurately make sweeping generalizations like this.
Music preference is not something you can generalize to a group of people. For example, I may like one song from Taylor Swift but not anything else. You may be right for popular songs but where Pandora's genome project shines is recommending music you would never otherwise discover.
If your suggestions are based on crowd sourced data like play count, your recommendations will be further encouraged by recommendations and thus become obsolete over time.
Spotify recommendations are far from great. They crowd source based on popularity, Pandora's recommendation engine is far superior.