The truth is, while the Nobel Prize in Literature could have been awarded to "better" writers in retrospect, there's hardly a name on the list that makes one go, "Huh?"
Of course Tolstoy should have received it, and of course Woolf should have won instead of Pearl Buck, but this doesn't make Pearl Buck a bad writer: just that history has gently "corrected" Woolf's status, bringing her to the front like the genius she truly was/is, and Buck has been moved to the back.
We can complain and torture ourselves until the end of time over the question of who should have won instead of Churchill, Fo, Bob Dylan, etc, but purely objectively, all of these choices probably made sense to the selecting committee at the time. You can't really argue against the zeitgeist, can you. Or else they might have been compromise choices, pure and simple.
Another thing to remember is the bureaucratic nightmare surrounding any and all such procedures.
I know this will seem paltry in comparison, but I've served on a couple of graduate committees that awarded prizes to undergraduates (Best Freshman Essay of the Year, that type of thing), and you won't believe how often somebody's petty nature (on the committee that is) trumps real student talent on paper.
What can you do? That person is part of the committee. You work around it and you settle on a compromise, which often means not awarding the prize to the one paper, the one student essay, that really deserved it, all because somebody simply wanted to say no. It's sad, but true, and probably happens more often than we realize.