The system isn't faulty. You don't have to be miles ahead of everyone to be number 1. England in the last year or so have been the best test side in the world, they are not dominant, they wouldn't beat everyone home or away. They have though performed the best in Test cricket out of everyone lately hence number one.
You keep confusing number one with domination merely because of how far Australia and the West Indies before them were in front.
Firslty i am not confusing "number one" with domination that was accomplished by Windies of 76-91 or Australia 95-07, when they were miles ahead of the pack.
An example of # 1 team in test history that didn't have daylight over everyone was England from 1951-1958. They managed to stay unbeaten for that 7 year period without losing a test, but they didn't dominate their competition i.e AUS, SA, WI especially away from home. They had to fight hard for their wins and the fact that they were unbeaten, everyone accepted they were the best of that time.
As you said the ranking system rates you as # 1 based on your performances "lately" or over a 2 year period according to the ICC. Which is wrong.
A strong prerequisite of a # 1 team is your ability to be versatile and win home and away. Regardless of how far this England team goes in the future, their dynasty will begin from the 2010/11 Ashes win, just like how the great West Indies team dysnaty began in the summer of 1976 and Australia during that 95 series win in the Caribbean. Because that was the series were certain England players like Cook, Anderson, Tremlett, Bell came of age as test players.
Its is not right for ENG to gain # 1 status based on 8 months and 2 series after the Ashes win, that is madness.
India although i have never considered them # 1, if they lose this series would be the first one they have lost since in Sri Lanka 2008. Otherwise India has had to build up the solid test record over the last 3 years, to be the the top test team along with South Africa who have a similar impressive series by series test record.
England's dynasty is not even 1 year old & them beating India @ home is just a starting block on a potential road to dominance.
Since if now England failt beat Indian in India this winter and struggle in Sri Lanka and vs South Africa next year. England potential home series win vs IND wll just be seen as a one-off in a years time and us ENG fans will look dumb thanks to a faulty ranking system that told ENG b4 this series, we could achieve # 1 status so quickly.
Overall though i certainly believe have the all bases needed to beat IND, SRI and SA within the next year, so dont get me wrong on that point. But as aformentioned its not right for ENG to be called # 1 just yet after this series, presuming they win.