It did work like that, but the world and cycling has changed a lot since the 1980s.
Firstly, the countries providing pro riders has expanded. We now have legions of North Americans, Brits, Aussies and East Europeans, whereas up to the 1980s, the peloton was primarily comprised of French, Italians, Spaniards and Beneluxians.
The talent-spotting and development routes in these new countries are different to the traditional areas. For example, the UK and Australia have more emphasis on channelling youngster through their track programmes and mountain biking, which didn't exist until the 1980s, has brought a lot of riders into road riding who might never previously have got into cycling.
Olympic cycling has also gone professional, so it's feasible for Olympic trackies to earn their crust via contracts with pro teams, whilst focusing on the track. The record of top-class IP riders in the open era isn't too shabby. McGee was a competitive roadie. Boardman, on his day, could compete with and even beat the EPO fuelled monsters of his day in long TTs, and he wasn't necessarily even the best pursuiter in the UK at the time. (Obree was probably better, given that he could match Boardman's performances whilst on inferior machinery and beat him in the 1993 World IP.)
Prior to the open era Olympic pursuiters were either Eastern Bloc (so didn't compete in the pro world), youngsters or proper amateurs, who had no chance against seasoned pro roadies, so it's not surprising that amateur pursuiters didn't make much of a mark in the pro scene - most prominent amateurs/juniors don't make the mark in the pro/senior world in many sports.
I don't know much about the pro pursuiting scene prior to the open era, though Roger Riviere was World Champ a few times and prominent in the Tour shortly afterwards.
In summary, I don't think the rules, conventions and norms of 30 years ago can necessarily be taken as gospel now. Both sides in the Wiggo debate need to keep an open mind.