I agree that 1x1's are horrible. What kind of liquidity is that. At the same point, I'm wondering if such a small size is a sign that the specialist himself doesn't know what's going on? Is there anything to be inferred from such a small market? Anyone trade off this? Just wondering.
I'd like to make sure I understand what you mean by collusion. By definition, isn't collusion two or more people talking and agreeing to set prices in a less competitive way? It seems that MM's playing games on the level 2 is not collusion. I agree it is unethical and wrong, but not collusion. IMHO.
In this case I think I have to agree with tampa. It's no use assigning attributes like "evil" or "manipulative" to certain market participants. If you think of the specialist as a nice person who is just doing you and all the other players a service, it doesn't grow your ulcer and your trading won't be any worse.