Here is the story. With five entries there are usually only two or maybe three real contenders. Strategic voting is present but manageable. There can be split votes across a particular actor or genre. With ten entries it is much harder to tell which picture will win. Counterintuitively, it might be harder for "odd" pictures to be nominated because they might end up winning. Popular movies like The Dark Knight will win more often because it will be hard not to nominate them (it didn't even receive a nomination). The net incentive is to encourage florid and unusual blockbusters with both dedicated followings and lots of commercial success. The semi-serious and historically proper puffy bloated movie probably will be discouraged. Is that trade-off so terrible?
Nominating so many pictures was common in the 1930s and 40s and it did not have obviously disastrous consequences.