I agree - you do get what you pay for and it is likely that Holiday Inn have resorted to using less well established suppliers who can fit in with their price line.
However, that doesn't necessarily mean that they will be bad suppliers - they may just be relatively new to the industry and so can't command higher prices. I think that if you feel you can trust the contact at the hotel and if you are happy with the look of the function room (or can afford to pay a little extra to decorate it the way you would like) then go for it. Just be prepared to be quite firm with the venue - insist on a menu tasting, insist on meeting the individual suppliers so that you can go through your requirements with them directly.
You may also want to keep a couple of hundred extra pounds in the budget so that if you are happy with most of the package but want to upgrade the food/wines/flowers or whatever, you can do so - ask the contact at the hotel how they would handle this.
I hope it goes well