I understand what you are saying. You're articulating very clearly what you believe to be true. It just turns out to be not nearly as significant as the weight you're giving it, at least not for the reasons you're describing.
First - there is no such thing as an "artificial higher ranking", due to any weightings or calculations on any of the game results. It's not like adding butter to a recipe to make it taste better. Each and every portion of the ratings calculation is to optimize the future predictivity - that's it. If they are weighting teams that are closer to each other in rating compared to teams that are further in rating, it's not because of some perceived "fairness" that needs to be baked in. It's not determining that a 4 goal overperform is only 1.5 times as impactful as a 2 goal overperform because they feel it should be. It's not determining that a 2 week old result is 3 times as impactful as a 12 week old result based on feel (all parameters here are just my guesses). It's because creating the ratings with the parameters how they are right now, is currently what they have empirically found to predict the highest number of successful predictions. Full stop. The rating a team has is how it's expected to perform at its very next game, always.
The ratings of SoCal ECNL aren't "pushed up a bit" because the teams are close in rating. First off, the premise is wrong. The teams in that bracket are playing teams for their full schedule that are often as far from them in SR as teams in pretty much any other bracket. Yes - at the pointy end they have ratings that are among the top in the country. But from mid-table to bottom, they are still a ways off. Just looking at 2011G, the top team is over 6 goals stronger than the bottom team. In 2009G, they are a little closer, with top team to bottom team spanning 4 goals, same for 08/07G. Their SR ratings aren't "artificially" higher or lower than they should be, compared to any other hypothetical context we'd want to compare them to. As stated above, their ratings are an expectation for how they will perform for their very next game. Like every team. All of them in the database.
When one of these described teams has a result that doesn't follow what SR would predict - that new result is baked in as soon as its loaded. Whether it's an identical team from down the street with an equivalent rating, or a team that is 8 goals different in rated strength, it can affect the rating. Yes - the farther off a team rating is going in, the less weight is applied to that result. Again, not because of "fairness" or help to highly rated teams (or to further punish teams that have very low ratings), but because those results have been determined to be less predictive of future results.
If the results of playoff games turn out to be incorrect predictions - the team's ratings are adjusted with every game, to bring the model's predicted results closer to actual results - just like for any game. The weighting doesn't change for a playoff game, as there is no knowledge of difference in weighting from any game to any other. The kicker is that - it doesn't matter that the teams have never seen each other, or played on different sides of the country. It's not like the ratings are off and have to be normalized by the games being played - they are already as "correct" as they always are. But in playoff time - yes, the overall predictivity goes down a few percentage points. Only the better teams are playing, total number of goals goes down, and randomness has a higher effect on each game outcome.