The bold bit is correct - so take your pick:
1 - Despite winning two European Cups and a Super Rugby title as coach, Michael Chieka can't recognise rugby talent
2 - Michael Cheika does recognise superior talent, but is so wedded to his Waratahs pals that he would rather lose international test matches and jeopardise the rest of his coaching career and legacy than select better players from other provinces
3 - Bitter parochiality is clouding your judgement
According to many posters Cheika's history with the Tahs is that he sticks with the team/players he thinks will perform his style of game and that time allowed him to achieve that style with the Tahs and to take them to the Super title. But how much time does he have with the Wallabies to show that he can be/will be successful? If the 2015 RWC is the goal, then I'd suggest his time runs out with this match against England. The likelihood is that the Wallabies will lose more than they win in next year's RC leading into the Cup, so he really has to show that he and his team can beat the Poms this weekend. Or is the 2015 RWC no longer on his horizon?
His challenge this weekend imo will be to match the Poms in the forwards because even with our changes the backline looks to be quite a bit superior to the Poms' backline. If we get parity or thereabouts in the forwards and still fail to win the game, then there will be real questions being asked about the game plan which would then have only delivered one win out of 4 against the NH sides. Not what would be regarded as a successful tour.
In the unsavory situation where we lose to the Poms, then I'll be inclined to vote for your No 2 option, but I could be convinced by argument that it really is No 1. For the Wallabies sake, and for all of our sakes, I hope that they can get the win and get it by playing an aggressive, up tempo game.