It's precisely how content for encyclopedias are generally created. Encyclopedias are compilations and summaries of information about a variety of topics, not compilations of original research by experts from a variety of fields.
Yahoo tried to replicate business directories on and for the web, Google did not.
An encyclopedia is more like a dictionary. I cannot just add a word to a dictionary just because my colleagues and me thinks its a great word and we use it often or because we are great in our own field.
But what you have quoted is a nutshell summary. I can see how one reading of it could be that newspapers are always a reliable source (and as tabloids are a form of newspaper). But I have feeling you've seriously stretched the reading to prove a point.
Reliable sourcing is linked; and if you read that policy it will make it more clear.
FWIW I never like labelling sources, as some editors tend to, in certain categories (newspaper, journal, etc.) because our policy explicitly sets out criteria to apply to sources on an individual basis.
So in that respect, I agree with you that the nutshell is a problem.