Are you familliar with MPT?
Your algorithms sharpe ratios are wildly different, so in the contest of your question yes, algo 1 would always be chosen. But you are missing the point I think, because the ranking system would not favor the algo2 as you think it would.
What would be a relevant question is :given two algorithm with identical sharpe ratios, Q would favor the one with the lowest possible volatility. Is it fair?
In fact, we know that choosing the least risky algorirhm is a risk aversion preference.
The fairness argument in turn, would spring from the fact that any algorithm could be adjusted to any risk preference with the addition of a risk free asset.
Since Q risk aversion is strong, people are submitting algorithm skewed toward that risk preference by allocating little capital.
But an asset manager cannot let most of its money stay in the risk free asset for long can he ? Clients, whatever their risk preference, would be annoyed by that.