First, I'd never recommend lowering standards in order to increase admissions at US schools. But, it's the qualified applicants that get overlooked (I'm not talking personally, though I'm sure I could have done/be doing better in the current app process) that are the ones I'm arguing for.
Granted, it's not scientific, and I don't know what the actual numbers are, but just from being a member on this forum I read about reapplicants that had what seem to be a very competitive applicantion. These people just didn't get in, for some reason. Sure, one could argue that they look good on paper (md applicants or just what they've said about their app), but can't tie their own shoes, but I'd like to give people more credit than that.
As for the residency situation, I agree that many med students choose to stay close (no numbers, but I'll concede that) for residency training. But, it's quite another to assume that if someone (say a less competitive applicant) is "forced" to go to a less desireable location (based on residency competitiveness), that they would want to stay in that town to set up practice, post residency.
It's hard to argue without some data, but it seems logical that once those people finished up their residency training, they'd move to an area that they found more desirable. (which usually tend to be the more "competitive" locations to begin with) Just ask yourself what you'd do. If the best cardiology fellowship you could find was in some location that you and your wife really found truly unappealing (was far away from your families.. you couldn't imagine raising kids at...etc.), but was all you could get, would you stay after you were done?