Way back in the day when I was swimming in high school, it was very common for the American men swimmers to sweep podiums in swimming. In 1976, the American men won every swimming gold except one (and they took the other two medals in that one).
Since then, as you note, entries are limited to two per country, and the range of swimming medals are much greater. Many more countries took their swimming programs more seriously, and American dominance has been cut such that the American men won only one individual title in Paris. Many more countries are medaling now. Bad for America, perhaps, but much better in establishing swimming as a truly global sport. I think on balance, the change has been good for swimming.
The same concept applies to gymnastics, where only two per country advance to individual finals. The change was bad for the traditional powerhouses back in the day (the Soviet ladies often took all the medals) but better for the sport globally. Thirty years ago, nobody could have predicted Olympic champions from Italy, Brazil, or Algeria.