To your questions above, my opinions. I'm no expert, just have some experience there.
1) The massive staff is due to massive success initially, then massive management mistakes continually, from the top down the chain. That's not to say there aren't great people fighting the good fight; There are many intelligent and capable people, but there's also a great deal misalignment of interests throughout the organization.
2) I think most of the games are pretty lame as well. I don't understand why Zynga customers pay for the games in most cases, but they do. Millions of them do. Zynga is very good at catering to their audience and giving them what they want but...
2.5) Typically what happens is a studio will operate trying to make the most profit in the shortest time, burning out its users with cheap grabs because that's what the higher ups demand. A lot of people in the trenches love games, and want to make great games, but get mired in the moment and vague demands from on high.
I don't think social games are a fundamentally flawed model. Some of Zynga's own games had massive retention and monetization per user, but didn't scale. I think it's an equation no one has fully down yet.