There could be such a downward spiral, it seems to me. When Google offers their users more and more of "what they want", then the risk of some kind of dumbing down is definitely with us. However, if that is happening, then the message from the market seems to be that the market doesn't want what's being offered - no matter how high the quality.
In a case like that, a site may need to find other avenues to cultivate their readership. And the paradox would be that if they're successful, then Google might notice that success and improve their rankings or change the kind of traffic it sends - by re-classifying the site into some different category.
However, I'm not convinced that long format articles would necessarily bang into a Panda problem just because of the length. I'm pretty sure there's a lot more to Panda than just user data on its own.