TUF is still a reality show and I am sure they know at the screenings that most are not up to par. In fact they are chosen for the lack of skills and such so that the audience can really see some progression.
The problem is it's not really bringing new fans anymore. People who are already MMA fans watch it and people who do tune in for the first time see a bunch of guys they've never heard of and probably won't see again after the show, at least for a long time, if ever. It seems like such a waste of money for the UFC.