There are several things going on. First, as mentioned, the 85 scholarship limit is a factor.
Second, the spread allows a team to use smaller, faster players, who demographically speaking, are more common. It is hard to find a guy with the size and speed of Terrelle Pryor, Beanie Wells, or Lawrence Wilson. It's a lot easier to find a guy who is just as fast, but 3-4 inches shorter and 30-40 pounds lighter. When you design schemes to make those guys effective, it keeps you in ballgames a little longer.
Third, the big schools are under a lot of behavioral scrutiny. A player with shaky academics and/or some potential legal or character issues is under a much more focused microscope at Ohio State, Penn State, Florida, etc. Coaches at a smaller school will have more leeway and can take kids that the big schools won't risk anymore.
Fourth, lots of young and upcoming assistants want their shot at the big chair early, and see how an Urban Meyer can go from coaching at a place like BG to coaching in Gainesville in a relatively short period of time. Talented young coaches don't want to serve for decades under a master, like how Gene Stallings was willing to do under Bear Bryant, or how Frank Solich did under Tom Osborne. The coaching talent at the mid majors is getting much better as a result.
Fifth, recruiting has changed a great deal due to the Internet and film. Email, text messaging, video highlights, camps, etc. all allow coaches from the mid majors to find the players they need and to get out and recruit them. It's surprising to see how many players at a supposed "regional" university will come from halfway across the country. MAC rosters are sprinkled with kids from Texas, California, Arizona, Florida, Georgia, and so on. A lot of those kids become impact players.
Sixth, the prevalence of bowl games and expanded regular season schedule is giving more and more mid majors a shot at playing a BCS conference foe. With 12 games, and with conference divisions that allow for more and more OOC matchups, plus the bowl tie ins, the better mid majors get their day in the sun. With the BCS now wide open to an overachieving mid major, there's more opportunities for either an upset or scare.
A lot of mid majors are very fundamentally sound football teams with well-designed and well-executed offensive and defensive schemes. Many of them are loaded with fast players as well. What you don't see are the big and fast players -- no 6' 2" corners, no 225 lb safeties, no 260 lb MLBs who can drop into pass coverage and so on. You'll see high skill level, but not in the same size player. You also won't see the depth, which is why a lot of Cinderella bids come apart in the second half. Many mid majors can play with you for 30 minutes. It's in the next 30 minutes where rotation comes into play that they begin to have problems. How often do you see the halftime scores of the early games and wonder what's going on around the country, only to see the BCS schools lay down the hammer in the second half?
Anyway, that's my take. It's good for football because it makes things fun.
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