From my perspective, the game is intended to be an extension/close parallel of real life beginning at the moment in time when the game was created, circa 2001 or whenever it was (in which Kentucky and UNC have already long since earned their high prestige), and not a complete reset to the dawn of college basketball. Otherwise there'd be no real point to using real college teams or conferences. I don't take "Season 1" in WIS as being 1939 or whatever, but rather 2002 or thereabouts.
Getting off on a tangent here, but San Francisco is really a unique case. They basically fell off the college basketball map because the program was so out of control and rife with scandal, controversy and prior NCAA sanctions, that they voluntarily imposed their own death penalty, shutting the program completely down for 3 years. As we've seen with SMU football, that sort of thing will essentially kill a program, and is really beyond the scope of this game.
I also think we have to be careful about using examples from too far in the past. The landscape of college basketball has changed dramatically in the last 30 years, with the exponentially growing importance of television, conference affiliation and overall revenue generation (e.g. football). With the powers that be now largely consolidated into power conferences, it will be far more difficult for a non-member to attain elite status than in the past, when everyone was on much more equal footing. Would it be impossible for Bethune-Cookman to become an elite basketball school? Probably not, but it is exceedingly unlikely and would be enormously difficult, and that should be at least somewhat (though not to the same degree) reflected in the design of the game. In my opinion, anyway.