Though I suppose it's only a matter of time until that too is gamed.
Apple makes money (and users benefit) by putting new material in front of eyeballs. They're going to be very careful about how they tweak the rankings.
The search box is horrendous, and makes it difficult to find an app even if you already know the name. The top lists contain a few gems, but are mostly filled with crap I would never use (especially the free).
The companies "gaming" the top free list were trying to work within this framework to get their apps out there and noticed. Some apps do well and stay on the list organically after the install campaigns, and others drop like a rock. I don't think these install campaigns are a great option, but there isn't a better marketing tool at this time. The best thing Apple can do to combat this is improve their search interface.
But yes, in general I agree with your assessment of the problem.
The system is gamed, but not by the little guys. It's the big studios that do it.
Unfortunately that was one of the only measureable ways to cost-effectively market iOS apps. Now the best strategy is to try and curry favor with Apple and get a front-of-iTunes promotional slot. Good for Apple but pretty unpredictable for developers.
This works in the favor of big name brands who probably have a open sales channel through iAds which makes it easier for them to get promoted. It sucks for indie app developers who have limited ways of getting noticed by the Apple editorial team.