When my son was 6 thru about 12/13, our local "rec" league was pretty good baseball, though my son did play travel at the same time. Small town, 25-30 boys per grade. 3rd thru 5th played together (3 teams total), then 1 team at 6th grade, as kids dropped off. We had 3 or 4 years worth of kids that had 4 to 5 really solid players in each grade. Put 4 or 5 good kids on a team of 12 and we had some really competitive games. I will say also that some of it was the fact that we had some good coaches. Fast forward a couple years...my son was in HS....the level of ability of the coaches dropped significantly and the baseball did the same. I would guess that in most areas, rec ball would go in cycles due to the kids....just like a HS team will do the same. As RJM said, the play level at Rec has as much to do with the coaches and what they are teaching or able to teach as it does the kids.
As a side note that applies everywhere I assume, when it came to time to choose the new 3rd graders each spring, if two kids were tied talent wise, we always went to the "hottest mom" tiebreaker 