and I suspect that the delegations seeing the worst return will drop off at every cycle and eventually it will eat itself.

Perhaps but I am unsure as for most (at the moment) the return they are getting is still better than they could do with that same amount of SP used somewhere else. It will never make anyone rich but, it could be just enough for them to stay engaged. If it could get some delegation obviously this helps with that too and if it has many users locking up Steem but it is still voting, it is going to have draw weight on the pool and aid wide and low distribution. ...i think...