Well if someone from a public medical school scored the same or higher on STEP 1 as someone from a top medical school, then yes I would say it's a bit silly to automatically give preference to someone from a top medical school. This is the reason why there is a standardized metric to compare to applicants, not an intangible quality such as prestige.
You are basing everything on prior performance, not performance in the current program. High School GPA and SAT/ACT determine what kind of UG you can attend. Being a strong HS student does not necessarily mean you will be a good college student even if you were accepted to a top UG program, you may not end up being that great of a medical school applicant despite your "prestigious" UG. Now fast-forward, you did really well on the MCAT, made it into a top 20. You were a stellar undergrad student but aren't as strong in medical school, you score a 230 on Step 1 at your top 20 and someone from a lower ranked, state medical school scores a 250. Why should prestige weigh so much into the decision? Clearly the applicant from the middle tier program is showing that he is a stronger medical student than you despite the fact that he is attending a lower-ranked medical school. It's about performance in your current program, not what you did prior that helped you get into that program.