@Angelicart I truly don't think there is a pecking order in the eyes of students who are actually at Oxford. In my time there I taught students from many colleges, and I didn't meet anyone who wasn't basically convinced that their college was the best. It might not be the richest or the prettiest or the most famous but it was usually 'the friendliest' and 'the best one'. I also taught a number of people who ended up at a college they didn't apply to and who said something along the lines of 'I applied to College A but I'm so glad I ended up at college B because College B is way better/the people there are so much nicer.'
There may be a pecking order in the eyes of the world outside Oxford, to do with which colleges have produced prime ministers/have fancy gardens/feature prominently in films about Oxford, but once someone arrives at Oxford they are pretty pleased with their college. Colleges, by their nature, are extremely good at building loyalty.
Also, I don't think it's true that the less clued up end up applying to the least over-subscribed colleges. Candidates who don't know that much about Oxford are often less likely to pick colleges off the beaten track and more likely to apply to the one they've heard of. Many people apply because a college is their link college for their region and so it's the one that has run sessions for their school and so they feel more familiar with it.
I also don't understand why you think it's unfair for open applications to go to less over-subscribed colleges. If people have a preference, they don't need to make an open application in the first place! Making an open application is a way of saying 'I really have no preference - choose for me'. Surely it would be unfair to create a situation where the over-subscribed colleges get even more over-subscribed? If all the open applications were distributed randomly, half of the distribution would immediately get undone by reallocation, which would be unsettling for candidates and a massive waste of admin time.