yes, IU has many talented kids aside from the BFA MTs. IU has been turning out outstanding performers for years, they've just never had the selectivity of an audition only, musical theater degree.
for seussical, of the twenty-one person cast, there were nine BFA MTs, six IMP MTs, three were BA theater students, one voice major, one business major, and one MFA acting student.
in 'a funny thing...' of the eighteen person cast, ten are BFA musical theater majors, three are IMP musical theater majors, three BA theater majors, one voice major, and one equity guest artist to play Pseudolas.
as you can see, there is always a mix of students who make the mainstage musicals at IU. however, the students who are focusing on musical theater tend to have stronger musical theater audition skills which is reflected in the cast list choices.
no one can say for certain what IU is looking for. my guess would be that in the same way that the department casts a variety of students in their productions, they are similarly looking for students who vary in appearance, voice type, strengths, and personalities.