A few things to note:
1) Contador being spanish TT champ is not so much of a farce,but more people assuming that spanish champ is the be all and end all of time trialling. His greatest opposition in that race was LL Sanchez and maybe Guiteirez, who are good, but not fantastic, at the discipline. So don't put too much weight on the colour of his jersey. If he beats Cancellara in October for that stripey jersey, then i'd be concerned.
2) Most of the time trials he has won, are shorter, hillier, and against a lower opposition (except 09 tour, explained below), where, up until 2009, he often lost minutes.
But a note on the Tour, it was a 15k TT (which contained a decent section of uphill) and a 40kTT (which contained a cat 3 hill). Look at the time splits, and you'll see, especially in the Annecy TT that he struggled from the 28km mark, losing about a minute to the bigger stronger cancellara. He is doing well in these time trials because they actually take into account power/weight, whereas your usual flat as TT it's all about power (see 07 tour where he loses 2 minutes against power rider like leipheimer)
3) Doping aside, mentality, in my opinion, plays a huge role in TT. There is a reason that when a rider is in the yellow jersey, he can TT himself like he never has before. Example. Alpe d'Heuz time trial, Contador loses 6 minutes to an on form Armstong. Contador literally had no incentive to try and win that TT, being his first tour, it was more about the experience of racing. Also look at that time trial for Basso's performance. He got caught by Armstrong, then basically held his position, because he had a reference point to judge his effort, if i remember correctly.
So i'm not surprised that Contador is the spanish champ. It's easier to win the spanish TT title than the worlds (or say the German, UK, Swiss) because you're literally lining up against traditional climbers.
The answer as to how good Contador can time trial will be truly tested in the 51km TT at the Tour this year. This will be the ultimate benchmark. Dead flat, and over 50km. That is his true test, and I predict he will lose at least 1 minute to the winner (like Cancellara or Leipheimer). Don't be fooled by his performances in shorter and/or hillier time trials. He's great, but it's not too 'unbelievable'. He's always been a very decent TT rider, but he is never going to dominant as he prevails due to his power/weight ratio, not his absolute power.
Note that if he wins the 50km flat TT (assuming all contenders stay upright, and the course is dry for the whole day) then i'd be seriously worried, but for now, his TT performances have been pretty consistent (with a steady, not worrisome build up) throughout his career