I'm a senior undergrad right at a small liberal arts college right now who is applying to math PhD programs in the U.S. I would like to eventually become a professor at a relatively good university that has a good environment for doing mathematics. But I'm concerned that since the schools I'm applying to are not at the very top, I am basically preventing myself from having that opportunity. For example, some professors at my college suggested that I apply to Univ. of Oregon and Univ. of Georgia, because they have strong faculty in algebra. But I looked at where past doctorate recipients from Oregon went, and they usually end up in small colleges that are pretty unknown. That is making me hesitant about applying to Oregon.
I consider myself a strong student (and so do my letter writers, and I guess that's what really matters) but I have poor math GRE scores that my professors think will severely limit my chances of getting into a program at the top 40 schools (e.g. they said I had a shot at, say, Univ. of Washington, UCLA, Chicago, and Michigan, before I got my GRE scores).
Some of my professors don't think the prestige of the grad school matters that much (i.e. as long as I write an interesting thesis and make my results known, I should be fine). But I have a feeling that my professors may be a bit out of touch, since I go to a liberal arts college, not a research university. And when I look at where past PhD students from good programs (e.g. in the Group I list in the AMS rankings but not top thirty) go to, I get a bit concerned. Maybe I should take a year off and try again next year. I was wondering if anyone had any advice.
I think your professors are sadly misinformed. It's hard to get a job at a top department (which for this answer I'll take to mean an AMS group I department; see http://www.ams.org/profession/data/annual-survey/group_i), no matter where you went to graduate school.
Perhaps some anecdotes will be helpful. I want to preserve my anonymity, so I can't get too specific, but here goes. I got my PhD about 15 years ago from a department that essentially everyone would rank as a "top 5 department". Looking at my classmates, about 20% are tenure stream faculty at AMS group I departments, 20% are tenure stream faculty at research universities that are lower ranked, 25% are tenure steam faculty at teaching institutions, and the remainder have dropped off the face of the earth (probably they went and got jobs in industry).
I am currently at an AMS group I university, but not a top 10 department or anything. Since I arrived, we've hired a number of other people in pure mathematics, and I don't think we've interviewed anyone who didn't have a PhD from a top 10 department.
Of course, nothing is impossible, and it is easy to point to people who got their degrees from non-top departments who ended up doing great. But these are exceptional people. Most people end up getting jobs at lower-tier places than the places they get their degrees.
By the way, I do agree that both UGA and Oregon have exceptional algebra groups. However, your assessment that few of their graduates go on to jobs at research universities is correct.